Norwich Union is the first major product provider to commit to the child trust fund after signing a partnership agreement with Children's Mutual for the development of the product.
Both parties say the deal – which sees NU share CM's admin and product development – is essential to achieve the economies of scale needed for the product which is capped at 1.5 per cent.
NU says the venture will not duplicate the strategy of stakeholder pensions, where providers expected to wait up to 12 years before generating a profit.
NU and CM are planning a range of product options, including an equity phasing to fixed-interest plan as well as a straightforward deposit-based product. The products will be branded CM, NU or a combination of both, depending on the target market.
All children born after September 1, 2002 will be eligible for the £250 Government-fun-ded starting payment, with children of families in receipt of the child tax credit getting a further £250.
With 670,000 children born each year, CM estimates that 1.7 million CTFs will be opened in the first quarter of 2005 when the Inland Revenue starts sending vouchers to families.
NU director of product strategy Simon Quick says: “We are going into this in a thoughtful way that de-risks the process. We aim to make the product a better proposition for us than stakeholder pensions.”
Children's Mutual chief executive David White says: “I am hoping IFAs will use child trust funds as the catalyst for a serious conversation with clients about funding their children's education and house purchase deposit.”