June 19 2013 Latest news:
Adam Aiken, Editor
Wednesday, September 8, 2010
Planning has never been more important for many parents looking to give their children a private education.
It’s not surprising that the biggest issue for many parents opting for independent schools is the fees – and, more to the point, how to pay for them.
But as well as the up-front fees, there are books, sports equipment, school trips, the uniform and various extra-curricular activities to find the money for. In short, funding a private education can make a big hole in your finances.
The economic problems of the last couple of years have hit the education of some pupils. With more parents out of work – including a large number of higher-paid City and professional workers – paying the bills has become harder for many.
Even in the good times there are individual cases of financial difficulty, but the downturn will have made the problem more widespread.
It all shows the importance of long-term planning if you want your child to benefit from independent education. If you rely on your cashflow continuing while your son or daughter is at school, you risk having problems if your circumstances change.
“If you are thinking of private education for your children, it pays to start planning early rather than wait until you have decided on a particular school, said John Mee, of Lovewell Blake Financial Planning.
Many parents will be only too aware that school fees have risen ahead of inflation over the past 10 years, which makes it even more important to plan early.
“Endowment policies were once a popular route with many families,” said Mr Mee.
“Some began taking out endowments when the first child was a few months old, frequently maturing 10 years ahead. With endowment providers declaring strong annual bonuses for such policies, this seemed a sensible route.
“But with the stock market crash of 2000, and particularly the extremely low bonuses offered on endowments today, this type of saving has become discredited.”
There are various other long-term savings options that can help with your planning. For example, all taxpayers are allowed to save £10,200 a year into a tax-free Isa (and, of course, you can double this by both parents taking up the full amount).
There is also the option of older parents using pension contracts or self-invested personal pensions (Sipps) to help with the cost of education, Mr Mee said.
Robert Clarke, an independent financial adviser at Almary Green Investments, said: “The fees are only part of the story. Parents need to liaise closely with schools to get a clear picture of the potential costs that lie ahead and to see what bursaries might be available.
“Some schools promote schemes to help spread payment of fees and offer discounts for younger siblings.
“For a lucky few, the fees will be affordable out of regular income. However, you must be realistic that fees and the associated costs will increase each year and, in the current economic climate, job security is no longer a given for many people.”
Mr Clarke said people who couldn’t afford the pay-as-you-go option should consider building up a lump sum as soon as possible, or look to borrow the money.
“The mantra with saving is the earlier the better,” said Mr Clarke.
“The advantageous tax position of Isas makes them ideal. But aside from Isas, parents might consider unit trusts, investment trusts or monthly savings into tax-efficient offset mortgage accounts.”
As far as borrowing is concerned, it could involve something as straightforward as a loan, but another option is a mortgage.
“You may be able to use a draw-down facility from your mortgage to assist with fees,” said Mr Clarke.
“But the obvious downside is that this can be slightly more expensive, and securing school fees against the value of the family home may not be a good long-term strategy.”
It might also be worth speaking to grandparents to see if they can help. They may like to consider making use of their annual inheritance tax gift exemption of £3,000. And additional use of trusts can be of benefit in terms of both providing for the fees and inheritance tax planning.
As well as budgeting for the fees, those responsible for the payments should not forget protection policies.
“I always stress to clients that making provision for a life assurance payment on death or critical illness is essential,” said Mr Clarke.
“Additionally, income replacement policies that will pay out if you are unable to work through illness or injury should be considered.”
David Lyscom, the chief executive of the Independent Schools Council – the sector’s umbrella group – has stressed that pupil numbers in the private sector have held up well during the recession, which suggests there has been some sensible planning by parents.
But given the uncertain future our economy is facing, that sort of long-term planning looks set to be even more crucial.