Select Committee on Treasury Written Evidence

Memorandum submitted by the Nationwide Building Society


  1.  Nationwide Building Society is the UK's second largest savings provider. We have more than 150 years' experience of helping families save, and today one in six children in the UK who saves does so with us.

  2.  Nationwide offers both a cash and Stakeholder equity Child Trust Fund, one of only four high street organisations to offer both options.

  3.  Nationwide has been offering cash and Stakeholder equity since January 2005, and to date has received more than 200,000 applications for Child Trust Fund. Applications are currently running at around 500 received each day. This gives Nationwide an estimated 18% share of the Child Trust Fund market.

  4.  Based on current applications, our figures show that 37% of parents choosing Child Trust Fund with Nationwide are opting for equity funds, while the remaining 63% are choosing cash funds.

  5.  The Society welcomes the Committee's inquiry into Child Trust Funds and is pleased to submit evidence to it.


  6.  It is disappointing that less than half of the Child Trust Fund vouchers sent to parents have been cashed so far, meaning that nearly one million Child Trust Fund vouchers remain uninvested. Nationwide is concerned that children may be losing out on either potential stock market growth or interest on their account, and that further work needs to be done to understand how parents can be encouraged to invest their vouchers.

  7.  It is too early to tell what proportion of parents, families and children themselves will top up the contribution made by the Government. Even modest additional contributions can make a significant difference to the value of the Child Trust Fund at maturity.

  8.  Our projections show that the amount children receive when they reach their 18th birthday will vary significantly, from around £1,000 for those who have just the money provided by the Government, to around £9,000 for those whose parents add £5 to the Child Trust Fund each week, to almost £40,000 for those whose parents top up the account by the maximum £1,200 each year.

  9.  Without top-ups across all socio-economic groups, in 16 years' time when the funds begin to mature, some children will receive a substantial windfall and others receive relatively little. For this reason, Nationwide believes it is vital that in addition to encouraging parents to take up Child Trust Fund, the Government demonstrates the benefits to parents of making additional contributions to Child Trust Funds.

  10.  Nationwide supports setting the additional payments into Child Trust Funds at £250-£500 for children on lower incomes—for both top-ups at age seven and at secondary school age. Nationwide would like to see the second top-up payment made at age 11, to allow the maximum time for the money invested to grow. We would welcome a swift announcement from the Government to confirm these amounts and the timing of these top-ups, which we believe would prompt renewed interest in and confidence in Child Trust Fund from parents.

  11.  Nationwide would like to see the Government confirm that the amounts of initial contribution and further top-ups will be index-linked, to avoid the value of the fund contributions being eroded by inflation.


  12.  One of the Government's goals for CTF was "to build on financial education to help people make better financial choices throughout their lives". Nationwide supports greater emphasis on the educational aspects of Child Trust Fund, and would like to see a financial education programme in schools linked to Child Trust Fund. We believe this would reinforce the messages about the benefit of saving into Child Trust Fund and help children understand and appreciate the value of the asset they will gain at the start of their adult lives.

  13.  As part of this financial education programme, Nationwide would like to see an additional top-up to the Child Trust Fund made to children aged 13-16 who achieve agreed financial education goals. Financial incentives to learn have already been used with the Education Maintenance Allowance and the Connexions scheme and Nationwide believes that there could be benefits in using a similar approach to encourage and reward financial education among children and young people.


  14.  Only children born since 1 September 2002 qualify for the Child Trust Fund. This may mean that older brothers and sisters have very little in savings when they reach 18 compared with their younger, CTF-qualifying siblings. Also, the two-tier savings regime may deter parents from contributing to a CTF if the child has an older sibling who does not qualify as it would be unequal.

  15.  From the age of 16 children can open a cash ISA with the same subscription limits as adults; however they cannot hold equity ISAs until they reach 18. Stock market-linked savings plans where parents can invest for children are available through friendly societies; however the maximum investment is £25 each month.

  16.  Nationwide would like to see the Government address the distortions that allow young children to hold an equity Child Trust Fund but prevent older children from investing in equities before they turn 18. We believe this step towards equalising tax treatment for children might encourage further children's saving.

November 2005

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