Select Committee on Treasury Written Evidence

Memorandum submitted by The Children's Mutual

  1.  Written evidence submission from The Children's Mutual in response to The Financial Inclusion follow-up—saving 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 savings pots.

  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 itself.

    —  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 key—and 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 solution?

  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 CTFs—they 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 Gateway

  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 comment—we are not experts in this field.

Treasury Select Committee Recommendation: Savings and other aspects of financial inclusion—Conclusions

  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 Conclusions—saving 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.

April 2007

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