Over the past five years, the cost of private education has increased by more than a fifth, so it’s no wonder that many mothers suffer sleepless nights, worrying about saving for your children’s education.
According to statistics released by Lloyds Bank Private Banking, school fees have risen by an average of 21% in five years – that is 8% above inflation.
The parents of children that left school this summer paid around £156,000 for their youngsters’ schooling, if they were privately educated from reception. Average annual fees have doubled from £7,300 when they started school in 2003 to more than £13,000 for this most recent academic year.
In London, the problem is even worse, as private education fees have risen by more than 25% in the past five years.
Of course, for parents who want to privately educate their children, they are investing in their future, and therefore the costs involved are just a fact of life.
However, with good financial planning, you can make this burden easier to bear.
How to save for your children’s private education
If you wish to send your children into private education, starting early with your financial planning is the best possible advice we can give. The sooner you can open a savings account and put money away, the better; it’s no different to saving for your other long-term plans, such as retirement.
Opening up ISAs (individual savings accounts) is a good way to fund your youngsters’ school fees, as you can currently save up to £15,240 each year tax-free.
There are several types of ISAs available including cash, stocks and shares, and innovative finance. Do your research to find out which is the best option for you, and then shop around to find the ISAs with the best interest rate.
One of the benefits of taking out a cash ISA is that you can access your money easily, which helps if you are paying school fees on an annual or termly basis.
Alternatively, parents can seek the help of a financial adviser to put together a portfolio of low risk investment ISAs. These can be held concurrently with savings accounts, to allow a ‘best of both worlds’ approach to financial planning for your children’s education.
Finally, an option for some Grandparents to help, will be to draw down a lump sum from their pension pot. Changes in regulations mean that now, once you reach the age of 55, you can now withdraw up to a quarter of your pension as a lump sum – even if you’re still working.
If your pension is likely to be more than £200,000 by the time you need a cash injection to cover school fees, then this option is suitable, as you can cover a significant chunk of the sums due and still have a decent amount of money left over. However, take care not to release too much, otherwise you could find yourself struggling financially later in life and could be liable for a tax bill. You should take advice before doing this.
If you need help to save or to set up ISAs, contact our financial planning team today.
Levels and bases of reliefs from taxation are subject to change.
The value of investments can go down as well as up and you may not get back the amount invested.
Investments and the income from them may go down as well as up and you may get back less than the amount you invested.
Past performance is not a guide to future performance.