Tory thinktank wants to keep door ajar for CTFs

18 February 2010 12:00 pm | By Helen Pow

Conservative thinktank Policy Exchange has called for the child trust fund to be retained in a bid to build a savings culture.

The Tories plan to scrap child trust funds for the majority of families. Only disabled children and the poorest third of families would receive the payments, saving the Treasury £300m a year.

But in a report last week, Policy Exchange says policies such as the child trust funds introduce more people to saving and create a base to increase the amount people save.

The report says: “The CTF will mean that every young person has a financial asset. It should improve financial education, meaning when the child turns 18, they can continue with their savings habit, and use other kinds of savings products, such as Isas.”

The thinktank has proposed a framework in which CTFs are one of four “jam jars” to save into.

The first jar would be for long-term savings and could include automatic enrolment into the National Employment Savings Trust. Policy Exchange is keen on the idea of being able to unlock some of the Nest funds in a specified emergency.

The Conservatives have also voiced their support for the early-access model.

The second jar would be to save for a big purchase, such as the deposit on a house. Policy Exchange says the tax-free Isa allowance of £10,200 could contribute to this.

The third jar would be for a regular annual treat such as a holiday or Christmas and this could involve the saving gateway, the matched savings scheme.

The fourth jar would allow people to save for their children and invest the free CTF voucher. The thinktank would like to bring forward the extra payment made by the CTF scheme once a child reaches seven so it is paid out at birth instead.

The report says: “To some degree, people’s choices of jam jars will be self-selecting. Some people might not ever save up for a house deposit and may just save for Christmas.

“Behavioural economics have shown that we commonly divide accounts into different objectives in this way. People are likely to focus just on the savings goals that are important to them. Presenting the policy in this way will offer people simple choices and emphasise the importance of saving. There will be a product for everyone.

“To deliver the political argument of why saving can and should apply to everyone, the focus should fall on the maxim that money may not bring happiness but it can bring the freedom to make choices.”

Informed Choice managing director Martin Bamford says: ” It would be lovely if the next Government leaves child trust funds and Isas in place because, if we could just see a bit more consistency, I think that would encourage more people to save for the future.”

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