Looking forward to your children's education

Private school fees have risen at an alarming rate in recent years. Since 1990, overall fees have increased by more than 300% while wages have risen by just 76% over the same period†. So how do you provide for your children’s education?

Key considerations:

1. What are the fees for the school you’ve chosen?

2. What is the likely rate of inflation? School fees inflation has averaged 4.5% per annum over 10 years, outstripping the Consumer Price Index (CPI), which was 2.3% over the same period.

3. Which funding option is most suitable for you?

4. Can you make the most of any tax efficiencies?

The importance of early funding

The Independent Schools Council Census in 2017 concluded that the average annual fees for private schooling are £12,870 for junior school, £17,829 for senior school and £21,912 for sixth form. But the price of private education can be significantly higher, with many of the most sought-after schools costing as much as three times the average rate per annum. For example, Eton, Winchester and Harrow started at £37,500 for the 2016/17 school year.
It will probably cost a total of more than £500,000 to educate your child privately from the age of four to end of university. However, if you start planning early, it’s achievable.

Saving for school fees

What are the funding options?

Maximise your tax-free saving allowance

If you commit to paying £1,666 into an ISA each month for the next ten years, and assuming an annualised growth rate of 6%, you’d create a fund of £270,000 from which to start funding your child’s education. If you continued to fund your ISA at the flat rate of £1,666 for the next 14 years, as well as drawing on the fund to pay the indexed school fees, you would end up with a fund of £342,828 for further education. Clearly this amount won’t be worth as much as it is today, but the monthly payments into your ISA will also gradually become cheaper in real terms.

Pre-pay the school fees

If you already have significant savings, they could be the most prudent way of paying fees, as you’ll ’lock in’ the cost for years to come. For example, if you could lock in this year and pay in advance for the next 24 years it might cost you £223,060, rather than £489,750 if you were paying year by year, starting in 10 years‘ time.
However, your money could be at risk in the unlikely event that the school goes bust. Also, a well-structured investment portfolio may outperform over the medium to long term.

Invest a lump sum for a 5-10 year timeframe

In a designated children’s school fees account, for example, or by setting aside a figure within your overall financial plan. Perhaps you could ask a grandparent to help, which might be a useful inheritance tax strategy. To put this in perspective, if you invested the £223,060 that it would otherwise cost to prepay fees, and assuming the same growth and inflation figures as the ISA funding scenario, you’d end up with £399,465 after 10 years. After a further 14 years of funding indexed school fees out of the pot, you’d end up with approximately £190,000.

Portfolio returns have exceeded those of cash over the last three and five years, but this option does have risks, and returns will vary depending on your personal risk profile.

Pay ‘as you go’

You simply pay the school fees, from income, as they arise. The only major risk is the possibility that your earnings might not continue to cover the cost of fees.
Whichever funding option you choose, thought and planning is essential. So an early conversation with a financial planner could prove invaluable. The sooner you do it, potentially the greater choice you’ll have in your children’s schooling.

To discuss this further, please email intermediary@canaccord.com.

† Paton, G. (2014) – Private school fee rises ‘driven by increase in wealthy foreign pupils’. The Telegraph [online] – [Accessed July 2017]

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