"Top-ups, not vouchers will be the true measure of the success of CTFs," says F&C

As the Government prepares to launch the first ever national "Child Trust Fund Week" commencing 15 January:

Leading investment trust CTF provider F&C Investments argues that the true measure of the success of the CTF initiative will be the extent to which accounts are being topped up by parents and guardians rather than the number of vouchers issued by the Government and their conversion rates.

Launched just two years ago, CTFs are the Government's flagship children's savings scheme. With the introduction of CTFs HM Revenue & Customs now sends every new born child in the UK a voucher worth at least £250 in order to open a special tax-free account which can be invested in either cash or stock market linked investments. Once opened the accounts can be topped up by family or friends to a maximum £1,200 per annum.

"CTFs were launched to help ensure that children have a financial head start in life by both providing a tax efficient vehicle for building up a pot of savings and also serving as an important reference point for improving financial understanding of savings and investments among parents, guardians and their children," said Jason Hollands, Director, Head of Communications at F&C Investments.

"Understandably, much attention to-date has focused on the number of vouchers being pumped out by the Government and the extent to which recipients get around to doing anything with them," said Hollands. "However, a key part of CTF Week should be to encourage more families to now top-up these plans if they are in a financial position to do so."

F&C points out that in isolation the basic CTF voucher is unlikely to be of significant value in 18-years time when the accounts mature, particularly if parents opt for cash-based CTFs rather than those invested in stock market linked investments. This is because over long periods of time inflation chips away at the real value of deposit accounts while at the same time significant future costs which may need to be met by maturing CTFs, such as the cost of a higher education or the purchase of a property, could yet rise further

"The vouchers are a token starting point to ensure that every child has an account opened for them. Thereafter the real success of the CTF must be the extent to which those accounts are added to, whether by parents, grand parents or family friends. This can be done on a regular basis through a direct debit or by occasional lump sums as and when money becomes available," said Hollands.

Statistics released by the Government reveal that around a quarter of the vouchers issued were not invested by their 12-month expiry date, a figure which both Government and providers would like to see reduced. Children whose vouchers are not invested by their 12 month expiry dates automatically have an account opened on their behalf by HM Revenue & Customs from a pool of providers who opt to receive Revenue Allocated Accounts (RAAs).

"Clearly, missing out on a potential year of growth limits the life of the child's account from 18 to 17 years and therefore it is desirable to see an improved voluntary take-up rate on the vouchers. However, top-up rates, not first year voucher take-up rates, should be the primary measure of success of the scheme as this will be the measure of whether the CTF is truly encouraging a savings culture" , said Hollands.

"In partnership with the Government, CTF providers have a key role to play in explaining the benefits of saving and thereby encouraging top-ups. We are delighted that around 66% of F&C CTFs have so far been topped up which we suspect is one of the best conversion rates in the market," he said.

"Although F&C has not chosen to accept RAAs, we recognise there is a particular challenge facing those CTF providers who have done so to communicate and inform those account holders entrusted to them. Currently RAAs are allotted to these providers in equal measure. However, we would encourage HM Revenue & Customs to look at the top-up rates of those CTF providers in its RAA pool and favour those with greater top-up rates while challenging those who have a noticeably low conversion record to do more to educate their account holders," concluded Hollands.