Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 120-139)

MR PAUL GRAY, MR STEPHEN JONES AND MR MIKE ELAND

22 NOVEMBER 2006

  Q120  Chairman: You were asked in the Spending Review as a target to ensure that 100% of services were offered on-line. You have not answered that question. You have said 97% of transactions are done online. What I am trying to get at is what is the correct percentage applying to services.

  Mr Gray: I think Stephen has given the answer there, that in terms of the product lines and services that we offer there are six of them for which there is not an online service.

  Q121  Chairman: What is the percentage? Six out of what—100, 1,000, 15?

  Mr Gray: Can I take that away and let you have a note on that?

  Q122  Chairman: You must know how many services you offer; otherwise you would not be able to consider the target.

  Mr Gray: Indeed, but I am afraid I do not have in my head just how many product lines we have got. It runs into many tens, I am sure of that. I cannot remember the basis on which those statistics are put together.

  Chairman: I would like a note on that, please.[7]


  Q123 Ms Keeble: According to the statistics on child trust funds, I think roughly a third of the vouchers have not yet been deposited into accounts. Do you think that that is an acceptable take-up rate?

  Mr Gray: 75% of vouchers were taken up within the initial 12 months, which is the period we give to recipients of vouchers to make their own arrangements. When we reach the 12-month point, if the vouchers have not been deployed by the parents we take action ourselves to open an account on their behalf, so in fact after 12 months 100% of accounts will be in operation and the issue is what proportion we are having to set up ourselves because parents are not doing it.

  Q124  Ms Keeble: Can we go back into those figures? You say it is 75% but if you go back and look through the figures of accounts opened—and these will be by the parents—it is 76, 76, 73 for July to September 2005.

  Mr Gray: Are you quoting from the report?

  Q125  Ms Keeble: Yes, these are your figures, and so those ones would just be coming to an end. What is quite worrying is that from October to December 2005 it is 64%. There might still be coming through but I would assume that people are probably going to tend to place the funds quite quickly or not at all. People put them behind the clock and after six or nine months they have forgotten about them, so it will tail off during the year. Looking at January to March and April to June 2006, admittedly there is still some of that year to go but the percentage is very much smaller. Obviously, there was lots of publicity around the start-up of these accounts and I am concerned about the decline in that initial take-up. Would you accept that there is a problem there and, if so, what do you think needs to be done to increase the take-up rates? I will come back to the ones that you have placed because that is a different issue.

  Mr Gray: In terms of the trajectory of the take-up, it is a rather complex pattern that emerges. There was certainly a large proportion of take-up initially. It then dips down. Actually, it does pick up towards the end of the 12-month period so it is not a progressive decline. Without talking about our opening the accounts, which you want to come on to, what we are seeking to do through our marketing campaigns, through the work that we are increasingly doing with voluntary sector organisations and others, is to identify ways in which we can better target and incentivise people to increase those rates of take-up right through the period.

  Q126  Ms Keeble: Obviously, when these things first came out there was lots of activity and interest around them and now they are a year, 18 months down the line would you accept that there might have been a little bit of complacency creeping in and there needs to be a fresh look at really giving a push to make sure that people open up these accounts?

  Mr Gray: I certainly do not accept that we are being complacent about this. We are looking consistently through this period to think what are the best ways in which we can refresh or reinforce the strategies that we have, whether it is through marketing or whether it is through working with voluntary sector bodies or whatever.

  Q127  Ms Keeble: Of the ones that you have opened up how many parents have come forward to claim them? You open them up, do you not?

  Mr Gray: We open them up and we write to the parents—

  Q128  Ms Keeble: To come and sort of claim them, as it were?

  Mr Gray:— and notify them that the account has been opened, and I think I am right in saying that the ones we open we allocate evenly among all the providers, and there are 14, I think. We then write to the parents telling them it has been opened and in most cases the institution with whom we have opened it also will contact the parents.

  Q129  Ms Keeble: How many parents then come forward and take them up?

  Mr Gray: I am sorry; I do not understand. Take up in what sense? They have been taken up.

  Q130  Ms Keeble: You can write to the parents but it might be that the parents have moved, take no notice, are not interested. How many parents then actually show some response to the financial institution?

  Mr Gray: I do not think we have very good information on that yet because we will need to wait until we can assemble the annual return information that we are getting from the providers. I think you are trying to get at how actively parents are managing the accounts by putting more money in or whatever.

  Q131  Ms Keeble: No, no. I was going to come on to that. How many of the parents come forward and say, "Yes, this account is for my kid. Here I am. I am the parent"? If you do not know yet what plans do you have to follow up and look at that? What I am concerned about is that the parents who do not open it initially and the parents who then do not come forward and claim their child's account will probably be the parents who most need it. What I want to know is what you are doing to identify those parents and then target them.

  Mr Jones: On the first point of your question, any initial contact between the parent and the financial institution is, of course, then between them. We ask the financial institution then to make an annual return to us to tell us how many people have come forward, so we will have data on that when we get the first set of annual returns after next March. We are doing research at the moment into the sorts of people who are not cashing in their vouchers themselves so that we can understand what kind of a problem this. We are very sensitive to the point that you raise, that those who might not be taking up the accounts themselves might be the people who, as you say, most need to take them up. We are doing some research at the moment to try and establish that.

  Q132  Ms Keeble: Do you have any figures on whether it is the larger ones which are not being taken up? It is either 250 or 500, is it not? Do you have any figures on that breakdown or not?

  Mr Jones: No, we do not, I am afraid.

  Mr Gray: No, but we will aim to have that.

  Q133  Ms Keeble: Do you know how many parents have paid into the trust funds?

  Mr Gray: Again, not yet but we will have that information from the returns. Obviously, it is not something we can monitor week by week. We are dependent on the returns from the providers to know that.

  Q134  Ms Keeble: It is obviously very important that the providers do that and that there is some pressure on them to provide the information, is it not?

  Mr Gray: Absolutely.

  Q135  Ms Keeble: I understand that you decided only to open accounts which track the FTSE index; is that right?

  Mr Jones: No, that is not right.

  Q136  Ms Keeble: Would you like to say what the position is then?

  Mr Jones: Where we open an account ourselves on behalf of the child it goes to one of 14 providers on a rotational basis and it goes into that provider's stakeholder account. Of course, it is up to the provider what type of account to offer and some of those accounts are tracker accounts and some of them are managed fund accounts.

  Q137  Ms Keeble: Do you have any breakdown on that?

  Mr Jones: Yes, I do. Of the 14 four are trackers and 10 are managed funds.

  Q138  Ms Keeble: Just looking at the breakdown of the providers of information about what kinds of accounts people have put the money into, 74% is stakeholders and 26% non-stakeholders, and then 20% is cash only, so presumably the other 80% is a mixture of cash and equities.

  Mr Jones: Yes.

  Mr Gray: It would be, yes.

  Q139  Ms Keeble: Would you care to comment on what sorts of lessons you are learning from that because I am quite surprised that there are so many which are a mixture?

  Mr Gray: I am not sure I want to comment in terms of making a value judgment about whether that is right or not. The regulatory regime that the FSA has put in place for the providers seeks to do the job of regulating, not prescribing, but in terms of the balance of types of investment it does, of course, have the provision—I think it from age 13 or 14 onwards—for so-called lifestyling that as you get towards age 18. As with other types of investment, it is appropriate for it to have more of a cash and certain outcome, but in terms of the initial investment I do not think it is for us to be seeking to prescribe. I think it is for the FSA as a financial regulator to put in place the right regulatory regime.


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