Child Trust Funds receive over £5 million a week
6 April 2010 marks fifth anniversary of the Child Trust
Fund
Over £700,000 a day - £5 million[1]
a week - is currently being invested in Child Trust Funds
according to leading Child Trust Fund (CTF) provider, The
Children’s Mutual.
As the UK’s first universal savings product
reaches its fifth birthday, these figures give a clear indication
that over the last five years the actions of parents, families and
friends have changed the savings habits in the UK, for the
better.
Prior to April 2005 less than one in five
parents were saving for their children’s future. However since the
launch of the CTF this figure has rocketed to three in
five[2].
David White, Chief Executive of The Children’s
Mutual said: “Given recent economic problems it is essential that
the UK reignites its savings culture. In five short years there has
been a 200 per cent increase[3] in the number of people
saving for their children over the long term and the Child Trust
Fund has been the catalyst. This is nothing short of phenomenal,
given the uncertain financial backdrop many families have
faced.”
Since April 2005 parents of five
million[4] children who now have a CTF have used them as
a means to change their savings habits:
- Currently 1.4m parents, family and friends are contributing to
their children’s accounts with in excess of £22m being added every
month[5]
- Nearly three quarters of parents choose to proactively open
their child’s CTF, which is a significantly higher engagement rate
than ISAs and pensions[6]
- The average direct debit payment made by parents into CTFs held
with The Children’s Mutual is £24 - if this amount were paid
monthly throughout the life of the account, it could result in a
lump sum of £9,750 upon maturity after 18 years.[7]
This commitment from parents and Government
towards saving for children’s futures may mean that an estimated
£2.96 billion[8] will be available to young adults each
year as they turn 18 – a significant amount towards the increasing
costs of adulthood such as buying a car, attending university and
getting onto the property ladder.
April this year also marks the beginning of
additional payments into CTFs for disabled children who are
entitled to Disability Living Allowance. These additional yearly
payments of £100 or £200[9] for severely disabled
children could mean an extra £3,000 at age 18 or
£6,000[10].
David White concludes: “The introduction of
additional payments for disabled children is crucial as it reflects
the additional costs that disabled young adults and their families
may face. Along with Government we hope that the additional money
will help to enable these children have a smooth journey into
adulthood.”
[1] Figures extrapolated from TISA – Sept 2009
CTF commentary document
http://www.tisa.uk.com/statistics.html?stat_type=ctf £22,000,000
invested each month x 60 (months in 5 years) = £1.3billion / 1825
days (number of days in five years = £723,000 per day x 7 days per
week = £5.061m.
[2] Abacus Research Ltd – Market Sizing Study for The Children’s
Mutual 2001compared with 2010 The Children’s Mutual customer data
Monthly MI (KF in 2009 56.7% of direct customers set up a DD at
outset of average £24.63)
[3] ibid
[4] HMRC quarterly stats as at 16 March 2010 –
http://www.hmrc.gov.uk/stats/child_trust_funds/ctf-mar2010.pdf
[5] TISA – September 2009 CTF commentary document
http://www.tisa.uk.com/statistics.html?stat_type=ctf
[6] HMRC 2009 statistical report
http://www.hmrc.gov.uk/ctf/stats.htm compared to 40 per cent of the
adult population has a private pension (ONS data - Family Resources
Survey, Department for Work and Pensions – published May 2009
http://www.statistics.gov.uk/downloads/theme_compendia/pensiontrends/Pension_Trends_ch07.pdf
) and 30 per cent have an ISA estimate based on TISA April 2009
http://www.tisa.uk.com/statistics.html?stat_type=isa_pep which show
£14 million ISAs in the UK. Average population over 16 = 49.1m
therefore estimate one third of population with ISA.
[7] Based on contributions of £24 per month from parents. This
future projected value is based on money being invested every month
plus the Government’s initial £250 voucher and another £250 at age
7 for 18 years in a Stakeholder Child Trust Fund Account. We’re
assuming an investment return of 7% a year, and charges of 1.5% of
the CTF account value each year. The projected values aren’t
guaranteed because the value of shares goes up and down. So the
final payout could be more or less than this.
[8] This projection is calculated on the following assumptions
based on figures from TISA Sept 2009 and HMRC 2009 Statistical
report:
1. 67% of CTFs receive £250 voucher at 0 and age 7
2. 33% of CTF receive extra £250 at 0 and 7.
3. 21.5% of CTFs receive an average direct debit of £22.59 from
birth
4. 9.3% of CTFs receive a lump sum of £300 in the first year + £80
for every subsequent year.
The projections in these calculations are based on money being
invested in a stakeholder CTF account. We’re assuming an investment
return of 7% a year, and charges of 1.5% of the CTF account value
each year. The projected values aren’t guaranteed because the value
of shares goes up and down. So the final payout could be more or
less than this
[9] Budget Report 2009 p100 (5.50)
[10] Future projected values are based on investing £100 and £200 a
year respectively for 18 years in a stakeholder CTF account. We’re
assuming an investment return of 7% a year, and charges of 1.5% of
the CTF account value each year. The projected values aren’t
guaranteed because the value of shares goes up and down. So the
final payout could be more or less than this.