Memorandum submitted by The Children's
1. Written evidence submission from The
Children's Mutual in response to The Financial Inclusion follow-upsaving
for all and shorter term saving products, announced 29 March 2007.
2. The Children's Mutual is the country's
only specialist dedicated solely to long-term savings for children
and as such we have extensive and unparalleled knowledge of this
subject given our 50 year history of activity. Prior to the introduction
of the Child Trust Fund (CTF) more than 200,000 children's families
had started to save regularly for them, with us, and following
the introduction of the CTF this is now 600,000.
The role of saving in the Government's
strategy on financial inclusion:
3. The Children's Mutual believes that the
role of saving in the Government's strategy on financial inclusion
is essential. Both encouragement for long and short term saving
is key in engaging with people from all income levels and our
findings show that it is saving "for a rainy day" and
key stages in their everyday lives which attract consumers to
address their personal finances since they are attracted to having
4. Consumers are far more likely to think
about savings first, for tangible items, than they are to engage
initially on savings that are quite a long way in the future.
We therefore encourage financial inclusion to include language
and information about what a financial savings product can do
for them rather than concentrating on the features of the product
The role of the Saving Gateway
5. The Children's Mutual is a supporter
of the Saving Gateway. Evidence exists that suggests "matching"
or "kick starts" to savings do make a difference to
encouraging people to save more. Indeed the Saving Gateway pilots
would bear out this theory.
6. We see the Saving Gateway as a "stepping-stone"
to including people in the wider savings world. A progression
from an (aided by matching) start such as the Saving Gateway to
Cash ISA to equity ISA takes people from have little to save to
the world of the investor. With good financial education along
the way this will have the potential to change people's lives.
The role of financial capability
in the context of the shorter term savings market
7. The Children's Mutual urges that financial
capability is addressed in the context of the shorter term savings
market since consumers are encouraged to take out loans to solve
their immediate needs more than understanding that saving is far
more beneficial. We urge that consumer credit agreements are reviewed
for regulation. We urge that advertising of financial products,
particularly loans, is reviewed. Saving and depositing money should
be at least as easy as borrowing it.
8. Financial Education is keyand
it is about people understanding the financial consequences of
actions, things that will or might happen or indeed things they
want to happen.
Responses to the recommendations
contained in Chapter 4 ("Saving for All") of the Committee's
Twelfth Report of Session 2005-06
Treasury Select Committee Recommendation:
9. "The restricted range of products
available under the basic advice regime, combined with the perception
that the scheme has not been as light touch as expected, has led
to a low number of major providers introducing the basic advice
regime. We recommend that the FSA conduct a full review of the
basic advice regime to examine what factors have led to such a
low take-up of the scheme by the financial services industry and
how the regime can be reformed to increase take-up. In making
this recommendation, we do not wish to imply that the problems
lie solely with the design of the regime. Problems with basic
advice are inseparable from issues relating to the structure of
the industry itself."
10. The Children's Mutual supports this
recommendation. Furthermore we strongly support the concept of
a generic advice service such as that being consulted on by the
Thoresen Review and that suggested by the recent work carried
out by the Resolution Foundation.
Treasury Select Committee Recommendation: A market-led
11. "We are not concerned in the current
Report with the general viability of the long-term savings industry,
although this is a matter to which we may well return. We are
concerned with the narrower question of whether it is fit for
purpose in terms of providing appropriate savings opportunities
for the less well-off. Our inescapable conclusion is that it is
not fit for purpose. The market may change in the future, but
until it does, it is likely that non-market-led solutions will
also be necessary to solve the problems of savings incentives
and opportunities for the less well-off."
12. The Child Trust Fund is a good example
of a longer term savings mechanism that has engaged with low income
families. The CTF acts as a catalyst since families from less
well off households are "topping up" their CTFsthey
are making regular savings deposits for their children's futures.
Experience from The Children's Mutual customer base shows that
43% of parents are regularly topping up their children's CTF accounts
with us, at an average of £24 each month, an increase from
£15 prior to introduction of the CTF. Included in these top-up
figures is evidence that low income families are finding the wherewithal
to save for their children in significant numbers. We estimate
that the accounts of 23-25% of children from low income families
are being topped up.
Treasury Select Committee Recommendation: The Saving
13. "There is evidence from abroad
and from the emerging findings of the Saving Gateway pilots that
matched savings accounts such as those piloted as part of the
Saving Gateway provide a clear and understandable framework of
support for savers. They also provide clear incentives for those
on low incomes who often cannot benefit from tax relief. The first
pilot phase of the Saving Gateway showed that matching can encourage
genuinely new savers and increased savings. We are concerned that
the valuable lessons from the first pilot phase of the Saving
Gateway must not be overlooked and that the Gateway must be promoted
nationwide at an early stage as a framework for savings for all,
although we recognise that in any national roll-out the Government
will need to consider the overall match rate, which income levels
the scheme should be focused on and the overall cost of the scheme.
We recommend that the Government examine ways to encourage the
development of matched savings accounts with contributions from
the private and charitable sectors."
14. The Children's Mutual supports the recommendation.
Treasury Select Committee Recommendation: Capital
limits for benefits
15. "We welcome the increase in the
capital allowances for benefits. We recommend that the Government
review the rules on tariff income to ensure that the withdrawal
rates for additional saving above capital allowances continue
to encourage households on benefits to accrue additional saving".
16. The Children's Mutual supports the recommendation.
Treasury Select Committee Recommendation: Housing
associations savings with rent accounts
17. We recommend that the Government consult
on the case for an exemption for Registered Social Landlords from
the FSMA requirements to register as a deposit-taker. The Government
should consider whether the appropriate degree of regulation could
be accomplished through other bodies such as the Housing Corporation.
18. The Children's Mutual has no commentwe
are not experts in this field.
Treasury Select Committee Recommendation: Savings
and other aspects of financial inclusionConclusions
19. Saving is not accorded the same priority
in the Government's strategy for promoting financial inclusion
as credit, advice and banking. The evidence we have received suggests
that savings, and the problems of making saving worthwhile and
beneficial for those on lower incomes, are integral to any effective
strategy on financial inclusion. In our subsequent Report on the
roles of the Government and the Financial Inclusion Taskforce
and the overall strategy, we will consider further whether the
terms of reference of the Taskforce ought to be amended to include
access to savings and the role of savings clubs. In the present
Report, we have set out a series of recommendations designed to
ensure that saving is accorded a higher priority in the context
of financial inclusion and that the particular needs of savers
and potential savers are at the heart of Government actions to
combat poverty and financial exclusion.
20. The Children's Mutual supports these
Conclusionssaving should be accorded a higher priority
in the context of financial inclusion.
Paragraph 62 Treasury Select Committee's
First Report of Session 2006-07
21. 62. As part of the Government's agenda
to promote savings it is vital that people are given confidence
that their money will be protected. We note that the Farepak scheme
was not regulated by the FSA and is outside the scope of the Financial
Services Compensation Scheme. We recommend that as a matter of
urgency the Government, in conjunction with the OFT and FSA, consider
whether appropriate safeguards are in place to protect those who
have entrusted their money to others. This should include examination
of whether an expansion of the FSA's regulatory responsibilities
is necessary, or whether the appropriate degree of regulation
could be accomplished through other mechanisms. The Farepak case
has highlighted a serious lack of consumer protection which could
have much wider implications for savings products of this kind.
Given the level of public concern, we want the Government to address
this issue with urgency and we want to see evidence of substantial
progress by the end of January 2007.
22. The Children's Mutual believes that
these savings products should be reviewed but with great care
and extensive research so that they are regulated according to
their merits. For instance one might regulate Farepak-like schemes
differently from a scheme people are saving into to support their
local Rugby Club, for instance.
The design, promotion and regulation
of products in the shorter term savings market, including hamper
products, Christmas savings accounts and other similar products
and potential products.
24. The Children's Mutual sees the attractiveness
to consumers for short term savings products which can be identified
by them as having a specific purpose, this is very appealing to
consumers who like to see how they will be paying for something
in the future. However there are concerns about their regulation
and we support a review but hope that the principle of continuing
to allow consumers access to ways in which to save for specifics
is not regulated away.