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Quilter proposes new children’s savings scheme to pandemic proof nation’s finances

Date: 25 August 2021

25 August 2021

In a new report on the lessons the government should learn from Child Trust Funds (CTFs), Quilter, the FTSE 250 listed wealth manager, is recommending the government take inspiration from CTFs and introduce a new savings scheme designed to increase Junior ISA (JISA) participation among low-income households.

Despite being far from a success, CTFs were instrumental in expanding young people’s participation in long-term savings and investment products as the accounts were universal and were offered to every child born during the life of the scheme.

Between September 2002 and September 2011, over 6.1m CTFs were opened by parents for their child out of a total of 7.5m births in the UK during the same period [1]. The number of accounts opened is slightly lower than the number of births, reflecting the low uptake at the beginning and the end of the scheme.

CTFs opened v children born

With the Coronavirus pandemic highlighting the need for personal financial resilience, and in recognition of the importance of starting adult life with a savings pot to invest in education, a business, a first home or simply for a rainy day, Quilter is proposing a new government-backed saving scheme to pandemic proof young people’s personal finances.

Called the ‘Help for Tomorrow’ scheme, Quilter proposes the government provides the funding for 200,000 JISA opening vouchers worth £250 each to parents of new-born children who receive either Universal Credit or Child Tax Credit, as well as a 15% contribution top-up to encourage ongoing contributions to the JISA.

The vouchers will not be mandatory, and instead parents will have to apply for a voucher from the government, requiring them to make an active decision to start saving for their child’s future and, combined with the ongoing contribution incentive, should help promote ongoing engagement. 

Providing 200,000 opening vouchers worth £250 would cost the government £50m a year. The 15% top up would cost the government around £19.5m each year [2].

Taken together, such a scheme would cost the government around £70m per year, broadly in line with the ‘Help to Save’ scheme, and under a third of the yearly cost of the CTF scheme, which cost around £250m each year at the height of the scheme [3].

Heather Owen, financial planning expert at Quilter commented:

“We know that even before the pandemic, the nation’s finances were in a perilous position. Over 16 million people have less than £100 saved for an emergency [3] and one in four young people have reported they are struggling with money [4]. Now, as we recover from the pandemic, government efforts must focus on pandemic proofing the nation’s finances, and this has to start with young people.

“Despite some concerns with elements of the scheme, CTFs shouldn’t be written off or confined to the history books. The scheme included a number of important innovations that boosted young people’s participation in long-term savings products, particularly those that were invested.

“We propose that the government introduce a new ‘Help for Tomorrow’ scheme so that every child can have the best possible start to adult life regardless of their background. The initial opening vouchers would allow those who may not otherwise be able to open a JISA for their child the opportunity to start saving for their child’s future, supported by an incentive to stay engaged with the account and make further contributions.

“That way the government can pandemic proof the nation’s finances by encouraging parents to start saving early for their child’s future, and therefore expand equality of opportunity across the UK.”

 

[1] ONS, Vital statistics in the UK: births, deaths and marriages, January 2021

[2] Around 13% of all additional contributions into CTFs were made into accounts that received an additional government contribution (as the parents were eligible for Child Tax Credits). £1bn is subscribed to JISAs each year, so assuming the 13% of contributions are made by parents eligible for Child Tax Credit or Universal Credit, the 15% contribution would cost £19.5m.

[3] HMRC response to Quilter FOI request.

[4] The Money Advice Service.

[5] The Office for National Statistics.

 

Tim Skelton-Smith

Tim Skelton-Smith

Head of External Communications