The last labour government’s Child Trust Fund (CTF) scheme was an innovative experiment in boosting children’s long-term savings.
Aiming to provide every child with the backing of a financial asset at the start of adult life, the scheme provided a £250 voucher for every child born between 2002 and 2011, which parents could use to open either a cash or investment account and which could be held until their child’s 18th birthday.
Around six million accounts were opened during the life of the scheme, with over £1bn worth of accounts maturing this financial year. The scheme ended in 2011 to be replaced by Junior ISAs (JISAs), which do not include the same opening incentive.
As we approach we approach the ten-year anniversary of the transition from CTFs to JISAs, Quilter has published a new report on the lessons that can be learnt from CTFs to boost young-people’s participation in long-term savings products, and to promote investments over cash.
We found that children’s’ universal access to long-term savings products was lost in the transition from CTFs to JISAs, meaning that now not every child has the opportunity to have a savings pot for their financial future.
We also found that investment participation dropped significantly in the transition to JISAs, as just under a third of JISAs are currently allocated to stocks and shares, compared with four-fifths of CTFs.
To boost young-people’s participation in investments, Quilter is proposing that the government conduct a ten-year review of the JISA landscape to consider why so few accounts are invested compared with CTFs, and to explore potential nudges to guide parents and grandparents towards investment accounts.
The report also develops proposals for a new ‘Help for Tomorrow’ savings scheme to increase access to long-term savings products. The new scheme would fund 200,000 JISA opening vouchers worth £250 each to parents of new-borns who receive either Universal Credit or Child Tax Credit, as well as a 15% contribution top-up to encourage ongoing contributions to the JISA.
Taken together, these recommendations will help improve children’s access to long-terms savings products and promote the virtues of investment accounts over cash accounts, which are likely to be more suited to children who have longer investment horizons.