Finding the fees
Chris Procter, joint managing director of SFIA, outlines the planned approach to funding school fees
The census produced by the Independent Schools Council showed school fees inflation at 4.0% for 2010. Despite the current economic climate and the fact that boarding fees averaged £8,003 per term and day fees £3,577 per term, pupil numbers only dropped 0.6% last year. Even though the cost of educating a child at an independent school continues to outstrip inflation year on year parents still believe that an independent education represents real value for money.
The overall cost (including university fees) might seem daunting: the cost of educating one child privately could well be very similar to that of buying a house but, as with house buying, the school fee commitment for the majority of parents can be made possible by spreading it over a long period rather than funding it from current resources. It is vital that parents do their financial homework, plan ahead, start to save early and regularly. Grandparents who have access to capital could be beneficial; by contributing to school fees they could help to reduce any inheritance tax liability.
Parents would be well-advised to consult a specialist independent financial adviser (IFA) as early as possible, since a long term plan for the payment of fees – possibly university as well as school – can prove very attractive from a financial point of view and thus offer greater peace of mind.
Funding fees is neither science nor magic, nor is there any panacea. It is quite simply a question of planning and using whatever resources are available, such as income, capital, or tax reduction opportunities.
The fundamental point to recognise is that you, your circumstances and your wishes or ambitions for your children or grandchildren are unique. They might well be similar to those of other people but they will still be uniquely different. There will, therefore, be no single solution to your problem. Indeed, after a review of all your circumstances, there might not be a problem at all.
So, what are the reasons for seeking advice about educational expenses?
• To reduce the overall cost?
• To get some tax benefit?
• To reduce your cash outflow?
• To invest capital to ensure that future fees are paid?
• To set aside money now for future fees?
• To provide protection for school fees?
• Or just to make sure that as well as educating your children you can still have a life!
Any, some or all of the above – or others not listed – could be on your agenda. The important thing is to develop a strategy.
At this stage, it really does not help to get hung up on which financial product is the most suitable. The composition of a school fee plan will differ for each individual depending on a number of factors. That is why there is no one school fee plan on offer.
The simplest strategy, and in most cases the most expensive option its to write out a cheque for the whole bill when it arrives and post it back. Like most simple plans that works very well, if you have the money. Even if you do have the money, is that really the best way of doing things? Do you know that to fund £1000 of school fees as a higher rate taxpayer paying 40% income tax, you currently need to earn £1667, this rises to £2,000 under the new higher rate of 50%?
How then do you start to develop your strategy? As with most things in life, if you can define your objective, then you will know what you are aiming at. Your objective in this case will be (a) to determine how much money is needed and (b) when it will be required. You need to draw up a school fees schedule or what others would term a cash flow forecast.
So: How many children?
Which schools? (or use an average school fee level)
When?
Any special needs?
Inflation guesstimate?
Include University Costs?
With this basic information, the school fees schedule/cash flow forecast can be calculated and you will have defined what it is you are trying to achieve.
Remember though that senior school fees are typically more than prep school fees – this needs to be factored in. Also be aware that the cost of university is not restricted to the fees alone; there are a lot of maintenance and other costs involved: accommodation, books, food, to name a few.
You now have one side of an equation, the relatively simple side. The other side is you and your resources. This also needs to be defined, but this is a much more difficult exercise. The reason that it is more difficult, of course, is that school fees are not the only drain on your resources. You probably have a mortgage, you want to have holidays, you need to buy food and clothes, you may be concerned that you should be funding a pension.
This is the key area of expertise, since your financial commitments are unique. A specialist in the area of school fees planning knows how to get at these commitments, to record them and help you to distribute your resources according to priority.
The options open to you as parents depend completely upon your adviser’s knowledge of these complex personal financial issues. (Did I forget to mention your tax position, capital gains tax allowance, other tax allowances including those of your children and a lower or zero rate tax paying spouse or partner? These could well be used to your advantage.)
A typical school fees plan can incorporate many elements to fund short, medium and long-term fees. Each plan is designed according to individual circumstances and usually there is a special emphasis on what parents are looking to achieve, for example, to maximise overall savings and to minimise the outflow of cash. Additionally it is possible to protect the payment of the fees in the event of unforeseen circumstances that could lead to a significant or total loss of earnings.
Short-term fees
Short-term fees are typically the termly amounts needed within five years: these are usually funded from such things as guaranteed investments, liquid capital, loan plans (if no savings are available) or maturing insurance policies, investments etc. Alternatively they can be funded from
disposable income.
Medium-term fees
Once the short-term plan expires, the medium-term funding is invoked to fund the education costs for a further five to ten years. Monthly amounts can be invested in a low-risk, regular premium investment ranging from a building society account to a friendly society savings plan to
equity ISAs. It is important to understand the pattern of the future fees and to be aware of the timing of withdrawals.
Long-term fees
Longer term funding can incorporate a higher element of risk (as long as this is acceptable to the investor) which will offer higher potential returns. Investing in UK and overseas equities could be considered. Products may be the same as those for medium-term fees, but will have the flexibility
to utilise investments which may have an increased ‘equity based’ content.
Finally, it is important to remember that most investments or financial products either mature with a single payment or provide for regular withdrawals; rarely do they provide timed termly payments. Additionally, the overall risk profile of the portfolio should lean towards the side of
caution (for obvious reasons).
There are any number of IFAs in the country but few who specialise in the area of planning to meet school and university fees.
SFIA are the largest Independent Financial Adviser who specialise in school fees planning in the UK.
This article has been contributed by SFIA and edited by Chris Procter, Joint Managing Director. He can be contacted at:
SFIA Ltd, 41 London Road, Twyford, Berkshire RG10 9EJ
Tel: 0845 458 3690
Fax: 0118 934 4609
Email: enquiries@sfia.co.uk
Web: www.sfia.co.uk
Finding the fees
Chris Procter, joint managing director of SFIA, outlines the planned approach to funding school fees
The census produced by the Independent Schools Council showed school fees inflation at 4.0% for 2010. Despite the current economic climate and the fact that boarding fees averaged £8,003 per term and day fees £3,577 per term, pupil numbers only dropped 0.6% last year. Even though the cost of educating a child at an independent school continues to outstrip inflation year on year parents still believe that an independent education represents real value for money.
The overall cost (including university fees) might seem daunting: the cost of educating one child privately could well be very similar to that of buying a house but, as with house buying, the school fee commitment for the majority of parents can be made possible by spreading it over a long period rather than funding it from current resources. It is vital that parents do their financial homework, plan ahead, start to save early and regularly. Grandparents who have access to capital could be beneficial; by contributing to school fees they could help to reduce any inheritance tax liability.
Parents would be well-advised to consult a specialist independent financial adviser (IFA) as early as possible, since a long term plan for the payment of fees – possibly university as well as school – can prove very attractive from a financial point of view and thus offer greater peace of mind.
Funding fees is neither science nor magic, nor is there any panacea. It is quite simply a question of planning and using whatever resources are available, such as income, capital, or tax reduction opportunities.
The fundamental point to recognise is that you, your circumstances and your wishes or ambitions for your children or grandchildren are unique. They might well be similar to those of other people but they will still be uniquely different. There will, therefore, be no single solution to your problem. Indeed, after a review of all your circumstances, there might not be a problem at all.
So, what are the reasons for seeking advice about educational expenses?
• To reduce the overall cost?
• To get some tax benefit?
• To reduce your cash outflow?
• To invest capital to ensure that future fees are paid?
• To set aside money now for future fees?
• To provide protection for school fees?
• Or just to make sure that as well as educating your children you can still have a life!
Any, some or all of the above – or others not listed – could be on your agenda. The important thing is to develop a strategy.
At this stage, it really does not help to get hung up on which financial product is the most suitable. The composition of a school fee plan will differ for each individual depending on a number of factors. That is why there is no one school fee plan on offer.
The simplest strategy, and in most cases the most expensive option its to write out a cheque for the whole bill when it arrives and post it back. Like most simple plans that works very well, if you have the money. Even if you do have the money, is that really the best way of doing things? Do you know that to fund £1000 of school fees as a higher rate taxpayer paying 40% income tax, you currently need to earn £1667, this rises to £2,000 under the new higher rate of 50%?
How then do you start to develop your strategy? As with most things in life, if you can define your objective, then you will know what you are aiming at. Your objective in this case will be (a) to determine how much money is needed and (b) when it will be required. You need to draw up a school fees schedule or what others would term a cash flow forecast.
So: How many children?
Which schools? (or use an average school fee level)
When?
Any special needs?
Inflation guesstimate?
Include University Costs?
With this basic information, the school fees schedule/cash flow forecast can be calculated and you will have defined what it is you are trying to achieve.
Remember though that senior school fees are typically more than prep school fees – this needs to be factored in. Also be aware that the cost of university is not restricted to the fees alone; there are a lot of maintenance and other costs involved: accommodation, books, food, to name a few.
You now have one side of an equation, the relatively simple side. The other side is you and your resources. This also needs to be defined, but this is a much more difficult exercise. The reason that it is more difficult, of course, is that school fees are not the only drain on your resources. You probably have a mortgage, you want to have holidays, you need to buy food and clothes, you may be concerned that you should be funding a pension.
This is the key area of expertise, since your financial commitments are unique. A specialist in the area of school fees planning knows how to get at these commitments, to record them and help you to distribute your resources according to priority.
The options open to you as parents depend completely upon your adviser’s knowledge of these complex personal financial issues. (Did I forget to mention your tax position, capital gains tax allowance, other tax allowances including those of your children and a lower or zero rate tax paying spouse or partner? These could well be used to your advantage.)
A typical school fees plan can incorporate many elements to fund short, medium and long-term fees. Each plan is designed according to individual circumstances and usually there is a special emphasis on what parents are looking to achieve, for example, to maximise overall savings and to minimise the outflow of cash. Additionally it is possible to protect the payment of the fees in the event of unforeseen circumstances that could lead to a significant or total loss of earnings.
Short-term fees
Short-term fees are typically the termly amounts needed within five years: these are usually funded from such things as guaranteed investments, liquid capital, loan plans (if no savings are available) or maturing insurance policies, investments etc. Alternatively they can be funded from
disposable income.
Medium-term fees
Once the short-term plan expires, the medium-term funding is invoked to fund the education costs for a further five to ten years. Monthly amounts can be invested in a low-risk, regular premium investment ranging from a building society account to a friendly society savings plan to
equity ISAs. It is important to understand the pattern of the future fees and to be aware of the timing of withdrawals.
Long-term fees
Longer term funding can incorporate a higher element of risk (as long as this is acceptable to the investor) which will offer higher potential returns. Investing in UK and overseas equities could be considered. Products may be the same as those for medium-term fees, but will have the flexibility
to utilise investments which may have an increased ‘equity based’ content.
Finally, it is important to remember that most investments or financial products either mature with a single payment or provide for regular withdrawals; rarely do they provide timed termly payments. Additionally, the overall risk profile of the portfolio should lean towards the side of
caution (for obvious reasons).
There are any number of IFAs in the country but few who specialise in the area of planning to meet school and university fees.
SFIA are the largest Independent Financial Adviser who specialise in school fees planning in the UK.
This article has been contributed by SFIA and edited by Chris Procter, Joint Managing Director. He can be contacted at:
SFIA Ltd, 41 London Road, Twyford, Berkshire RG10 9EJ
Tel: 0845 458 3690
Fax: 0118 934 4609
Email: enquiries@sfia.co.uk
Web: www.sfia.co.uk