Child Trust Funds set to bolster UK economy and fund a future generation’s aspirations
6 April 2009 marks fourth anniversary of Child Trust Fund ‘going live’
Over £3.5 billion could have been injected into the UK economy this year if Child Trust Funds (CTFs) had been introduced 18 years ago, according to new calculations released today by The Children’s Mutual to mark the fourth anniversary of the scheme going live.
The leading CTF provider’s calculations also show that nearly half of today’s 18-year-olds could have received just over £9,975 each, based on real stock market performance since 1991 and its customers’ savings behaviour today. Whilst past performance is no guide to what may happen in the future the figures being released demonstrate the potential future power of the CTF, and show how it could provide a generation of young adults with significant financial assets at age 18 which may help finance their aspirations and bolster the UK economy.
According to The Children’s Mutual, engagement with the CTF remains strong despite current testing economic times. Since its inception in April 2005, more than four million Child Trust Fund accounts have been opened in the UK and nearly one million Child Trust Funds accounts (22 per cent) are being topped up regularly through monthly direct debits by parents and wider family.
David White, Chief Executive of The Children’s Mutual said: “The CTF was introduced to give every child a tangible financial asset when they reach 18. And recent financial history illustrates that saving over the long term can be far most robust than many people may think, making it undeniably important to individuals and the country alike. On the fourth anniversary of the CTF going live, we are urging families with younger children to ensure they have plans in place to help tackle the cost of the future and to consider saving regularly over the long term.”
According to The Children’s Mutual’s figures, before the CTF was introduced just one in five children had a long-term savings account, now nearly 50 per cent of families who actively place their child’s CTF voucher with the leading CTF provider set up a direct debit when they open the account. And with many more families now having more than one CTF eligible child, top up levels among The Children’s Mutual’s customers are remaining consistent, demonstrating families’ commitment to the scheme despite the current climate.
Mr White said: “We are encouraged that the increase in the number of families with more than one CTF eligible child hasn’t impacted on top up levels; in real terms this means that the level of commitment by parents is increasing all the time. We believe the CTF is changing the nation’s savings habits for the better and in recessionary times this is very positive news indeed.”
The four-year anniversary of the CTF marks a key change in the application process as parents will no longer need to supply a paper CTF voucher in order to open an account (provided that the company they choose has agreed to update to a voucherless system). According to The Children’s Mutual, the move to a ‘voucherless’ process could increase the number of actively placed CTFs by as much as 10 per cent. The company will be introducing the system as part of its own processes from Monday 6 April.
Mr White said: “The move to voucherless account opening is something that we have long lobbied for. It will make the fund opening process easier still and will encourage even more parents to get involved. Any steps to encourage an even greater take up of the CTF should be warmly welcomed so we can build on the progress already achieved in the last four years in cultivating a generation and a nation of savers.”
The case for investing in shares over the long-term
The Children’s Mutual believes its calculations show that while current financial conditions are challenging, equity based, long-term savings plans give investors an excellent chance of significant future benefit. Had the CTF been introduced eighteen years ago, the first accounts would have had to contend with two recessions (including the current crisis), the bursting of the dot.com bubble and the fall out from 9/11, while still returning significant lump sums.
Saved into a hypothetical shares-based CTF tracking the FTSE All-Share
|Monthly DD Contribution started Feb 1991||Total amount paid over 18 years||
Amount Received 1 March 2009
|Voucher only||£250 + £250||£1,204||The ‘Amount Received’ figures are based on a hypothetical calculation, tracking the real performance of shares as measured by the FTSE All Share total return index over 18 years, from Feb 1991 to 1 March 2009.They include £250 invested at the child’s birth and at age seven and yearly charges of 1.5% of account value (1.5% is the max charge allowed on a Stakeholder CTF).The figures also include lifestyling4.
It is important to remember that past performance is not a guide to future returns. Shares can go down as well as up and the eventual lump sum could be more or less than shown. A child could get back less than paid in.
For illustration purposes the average return is assumed to be 5.6% a year based on £24/m DD. Population turning 18 in 2009 = 815,000; 69% of CTFs receive £250 voucher at 0 and age 7; 31% of CTFs receive extra £250 at 0 and 7; 22% of CTFs receive an average monthly direct debit of £22.10; 8% of CTFs receive a lump sum of £471 = £3,699,457,454 – actual calculations based on the past 18 years of FTSE All Share performance.
 Nearly 50% (48.8%) of all accounts opened directly with The Children’s Mutual have a direct debit with an average value of £24; the assumed maturity figure is based on a hypothetical calculation, tracking the real performance of shares over 18 years, from 1991 to 2009. They include £250 invested at the child’s birth and at age seven and 1.5% charges, as with the Stakeholder CTF today. This assumes investment in the FTSE All-Share index over that period including reinvestment of the dividend yield. The figures also include lifestyling. Amount received as 1 March 2009.
 According to TISA as at 15.12.08 22% of vouchers across the market have active direct debits. http://www.tisa.uk.com/statistics/15_20081215C.pdf.
 Lifestyling – when the child reaches 13 a proportion of money in the account is moved to lower risk investments every year until the CTF matures when the child reaches 18. For the purposes of the hypothetical shares-based CTF, money is moved into cash based on past Bank of England data for an average cash account.
 £24 represents the average Direct Debit payment into topped up accounts with The Children’s Mutual.