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Coming of age

The child trust fund is a major opportunity for everyone involved in

the financial services industry to start a new savings culture – a

culture that might have some chance of sticking.

While this big savings idea was in the 2001 Labour manifesto, it is

good to see it is now coming to fruition.

Parents, grandparents or other family members and friends can make

additional top-ups on top of the Government&#39s contributions up to the

annual limit of £1,000.

It could be argued that if the Government wishes to promote savings

at an early age, there should be no annual limit. However, the

current Treasury-led consultation, which will last until the summer,

will be asking whether there should be further infusions of

taxpayers&#39 cash.

Access to funds will be available at 18 and there will be no

restrictions on the use of the money.

Some commentators have said the money will just be blown on partying,

travelling and luxury goods rather than on further education or the

deposit on a first house.

Some have called for the money to be used only for educational

purposes at 18 and then rolled into an Isa before individuals can

decide for themselves at the more mature age of 25 what to do with

the rest of their fund.

There has been considerable debate over whether 18-year-olds are

mature enough to make the right decisions instead of just wasting the

fund. However, it would be rather difficult for the Government to put

restrictions on the way the money is spent.

There is a major initial hurdle for the savings industry to get over.

As the first funds are only expected to be available from early 2005,

the question remains, just what will providers be able to do in the

interim? Perhaps very little.

But some providers are keen to ensure that we take advantage of

current media momentum around the child trust fund.

Homeowners Friendly Society, which is intending to be one of the

first organisations to offer the child trust fund, wants to see this

momentum maintained and the Government to encourage feeder accounts.

It also wants to see significant advance publicity before 2005.

There have been clear indications from the Government that it is not

planning to use purely operational powers to create the child trust

fund but it is planning primary legislation. The first stage will

most probably take place in early autumn after the detailed

consultation period has ended.

A team will be formed to draft the likely legislation. This will

probably be formed by a mixture of Treasury, Inland Revenue and

possibly Department for Education and Skills officials.

We are then likely to see draft legislation produced for the Queen&#39s

Speech in November. The first reading of any Bill would take place in

December or January. The second reading would be in the first three

months of 2004. Once the Bill has passed through its Parliamentary

hurdles – and it will – we would expect to see it given Royal Assent

and become law at this time next year.

One of the key points behind the concept of the child trust fund is

to start a savings habit at an early age. It is hoped that once the

child has learnt how to save, he or she will continue to do so for

the rest of their lives, making it less likely that they will need to

turn to the state for help.

By encouraging a good savings habit early on, it could go some way to

repairing the gaping hole in retirement funds and savings in general

that is so prevalent in society today.

People now in their 20s and 30s seem to have completely missed out on

the savings habit. These two generations are now the “credit

buddies”, spending what they do not have, putting everything on

plastic or extending loans and mortgages to finance their spendthrift


The child trust fund is the big chance for the Government and the

industry to recreate a savings culture where future generations will

not run into the same problems as their parents.

In the present climate, with all the problems surrounding pensions,

the plummeting savings ratio and continually increasing credit, the

child trust fund might just be the big idea that could salvage the

Government&#39s desire to get the savings culture back on track.

Good promotion, forward planning and giving the public the simple and

necessary information they need is key to making the child trust fund

a success.

Equally important will be a positive response from all sectors of the industry.

The Government has said there will be open-market competition. Let us

make sure this is a new opportunity for savings and not another

missed opportunity.

Iain Anderson is a director and chief corporate counsel at Cicero Consulting


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