In a report on the lessons learnt from child trust funds, out today (August 26), the firm said the government should take inspiration from CTFs by introducing a savings scheme designed to increase Junior Isa participation among low-income households.
The firm said the coronavirus pandemic has highlighted the need for personal financial resilience, and in recognition of the importance of starting adult life with a savings pot, Quilter is proposing a government-backed saving scheme to “pandemic proof” young people’s personal finances.
Called the ‘Help for Tomorrow’ scheme, Quilter proposes the government provides 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 per cent contribution top-up to encourage ongoing contributions to the Jisa.
The vouchers should not be mandatory, instead parents should have to apply for one from the government, requiring them to make an active decision to start saving for their child’s future.
Providing 200,000 opening vouchers worth £250 would cost the government £50m a year. The 15 per cent top up would cost an additional £19.5m each year.
Quilter said this was 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.
Heather Owen, financial planning expert at Quilter, said: “We know that even before the pandemic, the nation’s finances were in a perilous position. Over 16m people have less than £100 saved for an emergency and one in four young people have reported they are struggling with money.
“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.”
Data from the Office for National Statistics and HMRC showed that between September 2002 and September 2011, more than 6.1m CTFs were opened by parents for their children out of a total of 7.5m births in the UK during the same period.
The number of accounts opened was slightly lower than the number of births, reflecting the low uptake at the beginning and end of the scheme.
Quilter said 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.
Owen added: “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.”
sonia.rach@ft.com
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