PN 3: Strengthening the Saving Habit of Future Generations

 
 

The savings of future generations were given a boost today with the launch in Budget 2003 of a new Child Trust Fund, providing children born from September 2002 with an endowment at birth.

The Child Trust Fund is universal and progressive – providing a Government endowment for all new-born children, with those in low-income families receiving the largest sums. The Fund will build up over 18 years, providing young people with a stock of assets to invest in their futures. It will help to strengthen the saving habit of future generations and spread the benefits of asset ownership to all.

Ruth Kelly, Financial Secretary to the Treasury, said:

“The Child Trust Fund is a groundbreaking new initiative which will strengthen financial education, promote positive attitudes to saving and ensure that all children, regardless of family background, will benefit from access to a stock of financial assets when they start their adult lives. It is based around the Government’s belief in progressive universalism – benefiting every child while offering more help to those in most need.”

The Child Trust Fund (CTF) will be introduced to benefit children across the UK by:

  • providing an initial endowment at birth for every child of £250, rising to £500 for children from low-income families who also qualify for full Child Tax Credit – around a third of all children;

  • allowing additional contributions to be made by parents, family members and friends, up to an annual limit of £1,000;

  • being accessible when children reach 18 years of age, whereupon there will be no restriction of the use of assets; and

  • being delivered through open market competition, with accounts expected to be available by 2005, enabling a wide range of authorised providers to offer the CTF.

The Government will publish further details of the CTF in summer 2003 including product specifications, sales regulation, limits on investment risk, the default investment option and the extent of any incentives for contributions into the CTF. This will ensure that providers and other stakeholders have the opportunity to comment on the detailed implementation plans.

DETAILS

Developing the Child Trust Fund (CTF)

A final paper describing the full details of the CTF will be published in summer 2003. Budget 2003 sets out the main details.

There will be two rates of initial Government endowment, at £250 and £500. The higher rate endowment will be available for children from low-income families who also qualify for full Child Tax Credit – around one third of all families. Optional additional contributions from parents, family members, friends and children themselves, can be paid into the CTF up to an annual limit of £1,000.

Access to assets in the fund, including any additional contributions, will be permissible only upon account maturity at the age of eighteen. There will be no restriction on the use of assets at maturity, at which point funds could be rolled over into other savings products.

Provision of the CTF will be by open market competition – any authorised provider will be able to enter the market, subject to meeting the conditions of the CTF.

The Government is currently seeking views1 on whether explicitly to link the CTF to the range of stakeholder products recommended by the Sandler review of retail savings. In the light of the views put forward by providers, the Government will publish a final paper in summer 2003 describing full product proposals for the CTF to ensure that providers and other stakeholders have an opportunity to comment on the detailed implementation plans for the Child Trust Fund. The paper will address a range of issues, including product specifications, limits on investment risk, the default investment option and the extent of any incentives for contributions into the CTF.

1 Proposed product specifications for Sandler ‘stakeholder’ products, HM Treasury and the
Department for Work and Pensions, February 2003.

Saving and Assets strategy

The CTF is an important part of the Government’s Saving and Assets strategy which is focused on:

  • improving the environment for saving, with macroeconomic stability and an efficient and well-regulated market in financial services;

  • creating the right incentives for saving, by ensuring that the tax and benefit system does not unfairly penalise savers and by assisting those on lower incomes;

  • empowering individuals with financial information, improved access to advice, and simpler and easier to understand savings products; and

  • developing savings products suitable for each stage in a person’s life cycle. As the scale of saving increases, proceeds from one product may be rolled into the next, helping people to progress up the savings ladder.

NOTES FOR EDITORS

The Government has formally consulted twice on the CTF. The first consultation on the CTF, Saving and Assets for All, was published in April 2001. A further document, Delivering Saving and Assets for All, was published in November 2001, reporting on the results of the first consultation and describing further work on the potential methods of delivery for the CTF. Both of these documents are available on the Treasury’s website.

The Government received a large number of responses from a wide variety of providers, including banks, building societies, investment management firms, life insurers, friendly societies and others. Consumer organisations, charities and other stakeholders also provided significant contributions to the consultation process.

In the 2002 Pre-Budget Report the Government announced that following consultation it had decided to offer the CTF through open market competition. The 2002 Pre-Budget Report also announced the Government’s intention to work with key stakeholders on the detailed design and implementation of the CTF, and to consider the relationship between the CTF and the suite of stakeholder investment products recommended by the Sandler review.

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GOVERNMENT DEPARTMENT INTERNET SITES

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