Additional savings boost for seven year olds… as lower income families urged to act

Posted in: Research Last updated: 16 Mar 2009

Whilst some parents of six year olds will be eagerly awaiting the 7th birthday £250 boost to their offspring’s Child Trust Fund [1], research from engage Mutual reveals that more than half of low income GB adults [2] are unaware of the Government’s free cash handouts.

The UK still has one of the highest levels of income inequality in the developed world [3] and against this backdrop, engage Mutual’s 3GB [4] research campaign tested a GB representative sample of over 2,000 people on their knowledge of the free CTF vouchers. The findings showed that 55% of those on lower incomes were unaware of this potentially significant contribution to a child’s financial future.

Where parents fail to use their child’s voucher to open a CTF account within 12 months of issue, the government opens one in the child’s name. More than 25% of CTF accounts are opened in this way [5]. The implication of this lack of take up is that the full potential to grow the savings pot with regular, or one off contributions (of up to £1200 per year) up to age 18 will not be realised6.

“This lack of awareness is a lost opportunity for low income children,” explains engage 3GB spokesman, Karl Elliott. “Without regular ‘top ups’ from parents, grandparents and other givers, the final savings pot will be a fraction of what might have been achieved.”

Making it easier for lower income families to save regularly with a CTF, engage is one of just four CTF providers in the UK [7] with a minimum ‘top up’ contribution of less than £10. The engage CTF calculator (see http://www.childtrustfund.com/Child-Trust-Fund-Calculator.aspx) indicates how even small, regular contributions can boost savings’ growth quite considerably.

 Amount invested

 Annual Growth assumption

 Amount after 18 years
 No additional payments to Government's standard contributions  7% £1,000 
 £5 per month top up  7%  £2,560
 £10 per month top up  7%  £4,130

(Calculations based on a child aged 1 with an initial £250 and further £250 aged 7. The child’s tax free cash lump sum payout at the age of 18 will depend on the investment performance and cannot be guaranteed. The value of the Child Trust Fund can fall as well as rise and the child may get back less than has been paid in.)

further 3GB research findings:
women are more financially savvy than their male counterparts as more than seven in ten were aware of the government cash hand out (73%) in contrast to six in ten men (66%).
whilst Lancashire might not be Britain’s financial hub, people from there were the most aware of the boost to family finance – almost eight in ten people questioned knew about the CTF hand out (78%). In contrast, only six in ten (65%) people from the financial heart of Britain – London – were aware of the free hand-out.

Karl Elliott, engage 3GB spokesperson said:
“With income inequality still a major issue and tough times for the foreseeable future, it is important that we raise awareness of the tax-free cash handouts so that the next generation does not miss out.”

1. to encourage a savings habit amongst children and their families, the Government’s CTF scheme entitles all children born on or after September 1 2002 to a free £250 voucher (£500 if the parents are on a low income), followed by a further £250 (or £500 for low income families) on the child’s seventh birthday. The first 7th birthday payments will trigger in September ’09.

2. research was conducted by YouGov across a GB representative of 1,983 adults. Respondents were asked on their net personal income according to their social grade. The majority (62%) of C2DEs questioned earned less than £15,000.

3. OECD (Organisation for Economic Co-operation and Developmenthttp://www.oecd.org/dataoecd/47/22/41528630.pdf

4. 3GB is Engage Mutual’s Three Generation Britain research index. Research was conducted by YouGov across a GB representative of 1948 people between July 25th and 28th of July 2008. The research explores the financial relationships of care between the generations and investigates shifts in traditional financial provision

5. HMRC figures published January 2009

6. government opened accounts are much less likely to have direct debits that pay regular amounts into them.

7. source: Investment, Life & Pensions, December 2008. engage is one of four providers accepting contributions of less than £10 (from a total of 26 ctf providers)
engage Mutual Assurance can be contacted on 0800 169 4321 or by visiting www.engagemutual.com

The information contained in this press release is intended solely for journalists and should not be relied upon by private investors or any other persons to make financial decisions.

Kathryn McLaughlin
engage Mutual Assurance
01423 855245

notes to Editors:

1. engage Mutual Assurance is a trading name of Homeowners Friendly Society Ltd (HFSL), Registered and incorporated under the Friendly Societies Act 1992, Registered number 964F and its wholly-owned subsidiaries, engage Mutual Funds Limited (eMFL) and engage Mutual Insurance Ltd (eMIL). Both HFSL and eMFL are authorised and regulated by the Financial Services Authority (FSA). HFSL’s Register number is 110072, eMFL’s Register number is 181487. eMIL is authorised to conduct general insurance business by the Gibraltar Financial Services Commission and is regulated by the Financial Services Authority for the conduct of UK business. eMIL’s FSA Register No is 485680. You can check this on the FSA’s Register by visiting the FSA website www.fsa.gov.uk or by contacting the FSA on 0845 606 1234.

2. engage is one of the larger UK mutuals providing simple, value for money savings, protection and investment products. It currently helps over 420,000 customers of all ages to protect, preserve or enhance their welfare, with some of the most straightforward products on the market. engage prides itself on being a family-oriented, modern mutual, providing products that help enable households of all kinds to plan their finances to help meet their future needs. More information on engage Mutual is available at www.engagemutual.com

3. engage supports mutuality, friendly societies and the regional financial services industry through links with the Association of Mutual Insurers, the Association of Friendly Societies, Mutuo and Leeds Financial Services Initiative.

4. engage Mutual Funds Limited (EMFL) is a provider of the Child Trust Fund direct and in partnership with organisations including Yorkshire Building Society and Scarborough Building Society.

5. engage Mutual has been the title sponsor of the Rugby Super League since 2005 and has extended its agreement to 2010.

6. engage Mutual announced its entry into the health cash plan market in July 2008 following an agreement of partnership with Wakefield & District Hospital’s Contributory Scheme (WDHCS). Further to this, 30,000 health cash plan customers transferred from Premier Health Benefits (part of WDHCS) to engageMutual Insurance Ltd.