You & your money:
Baby vouchers struggle to take their first steps
With half of all parents staring a gift horse in the mouth,
are child trust funds a costly flop?
By Sam Dunn
featureseditor@belfasttelegraph.co.uk
03 December 2005

Who could resist a £250 Government freebie to fund a nest egg for their child's 18th birthday? Nearly half of all parents, it seems.

The alarmingly poor take-up of the flagship child trust fund (CTF) scheme seven months after its launch has begun to rattle MPs, consumer groups and the savings industry. More importantly, it is in danger of failing to help those it was intended to benefit: children.

Parents of all children born after September 1, 2002, have been sent a £250 voucher (£500 for low-income families) to invest on their behalf. But in homes up and down the country the vouchers lie neglected - and every day this happens, another day's interest for that child's account is squandered.

At the end of August, some 1.93m vouchers had been sent out and only 889,000 invested, amounting to 46%.

The Building Societies Association revealed that October's CTF sales figures from its members (which make up 40% of CTF providers) were the lowest since the scheme was introduced.

David White of the Children's Mutual friendly society paints a brighter picture, estimating that the figure for the proportion of parents who have taken action will have risen from 46% to 57%. But he admits that the scheme has reached a critical point.

"There are parents who either don't know what to do or fail to get round to doing it. We need to ask, by giving parents too much choice, is there confusion?"

When it comes to investing the CTF voucher, parents have three options: a simple cash account with a bank or building society; a "stakeholder" fund investing in shares but with a built-in safety net; and higher-risk share funds. But freedom of choice has led to uncertainty for parents, says Wendy van den Hende of the charity Pfeg (Personal Finance Education Group).

"People get paranoid about making the wrong choice for their children," she says. "For most parents, getting a voucher to put into a fund for 18 years is an alien concept."

For the Treasury, parents' failure to react is not so far a major concern. It says it is content with take-up and points out that, when developing CTFs, it sought opinion from consumer and family groups. However, a spokesman admits this research didn't extend to interviews with parents themselves.

Meanwhile, pressure for reform is growing. The Institute for Public Policy Research has argued that the Government should introduce a tiered system of CTF top-ups when children reach the ages of seven and 11. The value of vouchers for poorer families should be increased, the think-tank added.

Marian Harper (36) and her husband Andrew, from Daventry, are a typical family. They plumped for a Nationwide cash CTF for their daughter Aislinn last month. It pays 4.75% interest.

"I didn't want shares," says Marian. "They seemed more risky, and since it's money for our baby, it's special. I didn't want to risk it elsewhere."

Parents who do nothing for 12 months will see their voucher invested in a stakeholder fund picked by the taxman. At this rate, HM Revenue & Customs will be a busy department in five months' time