Memorandum submitted by engage Mutual
Assurance
engage Mutual Assurance is delighted to make
the following response to the Treasury Select Committee's request
for submissions for its inquiry into Financial Inclusion. We would
welcome the opportunity to expand or clarify any of the remarks
made below, if this is deemed to be useful. Our submission introduces
the work of engage Mutual Assurance and makes some specific remarks
on inquiry questions 3 and 4, which we believe will constructively
inform the work of the Committee in this area.
1. ABOUT ENGAGE
MUTUAL ASSURANCE
1.1 engage Mutual Assurance is a trading
name of Homeowners Friendly Society Limited (HFSL) and its wholly-owned
subsidiary Homeowners Investment Fund Managers Limited.
1.2 engage Mutual Assurance is a proud provider
of savings, protection and investment products, including the
Child Trust Fund (CTF).
1.3 engage Mutual Assurance is based on
strong values of consumer trust; being on the side of hard working
families and delivering value for money financial products. As
a leading CTF product provider with distribution partners including
ASDA (One of the most successful distribution channels for CTFs,
with approximately 4% of the CTF market), Debenhams, NAAFI Financial
(provider to the armed forces), Legal & General and many leading
building societies, we passionately believe in "Mutuality
in a Modern Age".
1.4 Last year's All-Party Parliamentary
Group for Building Societies and Financial Mutuals report noted
that "Mutuals are well placed to provide financial services
to citizens on lower incomes and the financially excluded. The
importance of low value but consistent savings and investment
policies should not be underestimated".
1.5 engage Mutual Assurance has a proud
history of helping people understand the benefits of simple financial
planning.
2. QUESTION 3—FINANCIAL
EDUCATION AND
ACCESS TO
FINANCIAL ADVICE
2.1 engage Mutual Assurance believes that
the inertia experienced by many people when dealing with financial
matters can effectively be overcome by placing simple, easily
understood financial services within everyday life, in locations
where communities naturally gather. Simplicity of message and
ease of accessibility and process are key to reducing inertia
in the process of saving.
2.2 engage Mutual Assurance's provision
of the Child Trust Fund through ASDA stores, for example, has
succeeded in attracting a young female demographic by placing
the product in an environment which is both familiar and comfortable
to the customer.
2.3 Our provision of a CTF via NAAFI Financial,
(distributor of financial services to the armed forces) has meant
that CTF has become readily available to a low income group who
are poorly served by traditional financial services providers.
This initiative will deliver both short and long term benefits
of increased financial services understanding and assets.
2.4 engage has also been working closely
with Access Matrix (a subsidiary of Sadeh Lok Housing Association)
to provide information on CTF via a network of housing associations
across the country. This audience includes some of the poorest,
most excluded and financially illiterate people in the UK, who
are least likely to have been touched or impacted by the CTF promotions
to date.
2.5 Online communication is increasingly
seen as a means of reaching low/moderate income earners, as people
increasingly interact with the internet at home and at work. engage
has been spearheading the use of this channel by offering a very
simple, straightforward, clean website that has enabled over 50%
of their customers to apply for their CTF on-line. The accessibility,
speed and ease of use can be critical for parents, during what
is ultimately a very busy time with a new-born child.
2.6 To be truly inclusive, it is important
that the product itself is accessible for people with modest incomes.
In response to the needs of parents who may be coping with lower
maternity pay or more than one child eligible for the CTF, engage
has one of the lowest contribution rates of just £5 per week.
We believe that such accessibility is key in starting people's
savings habit, and one which mutuals, such as engage, are very
well placed to offer.
2.7 A combination of accessibility, ease
of application and affordable entry levels has meant that engage's
CTF has attracted 50% of its applicants to make additional, regular
contributions to the account—double an industry survey average
of 26%[101]
engage is very proud to have encouraged a significant volume of
parents (from various social and income groups) to both invest
their voucher and commit to regular additional payments.
2.8 engage will look to work with the Government
to ensure that as many parents as possible who have Revenue Allocated
Accounts allotted to their child will actively start contributing
to them. We are also looking forward to the research assessment
results being conducted by the HM Treasury and the HM Revenue
and Customs, covering the first year of CTFs, which should hopefully
give us all a better insight into how to reach low/moderate income
earners.
2.9 Creating a stronger savings culture
in the UK will take extensive work from families, financial services
firms and the Government. The Government, for its part, should
take every opportunity offered to it to remind families of the
benefit of savings and the Government incentivised means available
to them to do so, such as CTF, Education Maintenance Accounts
(EMA's) and Savings Gateway. This could take the form of asking
families whether they could spare a small proportion of their
Child Benefit to slowly amass some family rainy-day savings. Or,
asking children in receipt of EMA whether it may be worth them
adding a small amount to their CTF so that they may better achieve
those goals they have set themselves post-18.
2.10 As an example of the initiatives we
have tested, engage piloted a scheme in an indoor play centre
in Harrogate in December 2005 to offer Child Trust Fund packs
to parents at a social event. The scheme was a success and afforded
many opportunities to learn from parents about their requirements,
as well as giving information about the engage CTF. It also resulted
in local coverage of the event—acting as a further reminder
for parents to bring their vouchers on the day. We have also piloted
a voluntary scheme with local sixth form students who undertook
a six week course on basic financial services knowledge, designed
to help them understand some of the key financial issues they
will face in adulthood and the tools and products available to
them.
3. QUESTION 4—INCENTIVES
AND BARRIERS
TO SAVING
FOR PEOPLE
ON BELOW
AVERAGE INCOMES
3.1 Sound budgeting is the foundation of
saving, and saving is best done steadily and regularly. We therefore
welcome the recent changes the HM Treasury has made to the family
tax credits system to ensure that far fewer people are faced with
either rapid income changes or long periods of tax credit repayments.
The Government should continually explain these rules to ensure
people are best prepared to understand what their future income
is. A savings habit by its very nature is something that is built
on routine, and routine built on stability—the Government
must therefore continue to do all it can to create these conditions.
3.2 Literacy and numeracy are significant
barriers to saving. Utilising creative presentation for generic
advice such as decision trees and alternative formats helps to
create a logical understanding of the product features, benefits
and risks when making their choices. Naming products in a simple
manner would also assist people. Phrases such as "stakeholder"
hold little meaning for those outside of the financial services
sector.
3.3 The regulations surrounding many products
is prohibitive to those on lower incomes who may not have costly
ID, such as passports or drivers licenses and who pay for household
utilities on a weekly basis or live in shared accommodation and
therefore have no bills registered in their name. It is a truly
bizarre oddity of the current regulation that it is far easier
for a low/moderate income earner to acquire a loan or credit card,
than it is for them to create their own savings account.
January 2006
101 BDRC Syndicated Survey Wave 6 January-June 2005.
Objectives: to establish parental awareness of the CTF, patterns
of registration behaviour, savings intentions, account opening
intentions and use of CTF funds. Back
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