PERSONAL FINANCE: How to Make the Private Education Sums Add Up ; with the Cost of Fees for Independent Schools Rising Inexorably, Securing the Mix of Savings and Investment to Finance Them Is an Education in Itself
Tickell, Tom, The Independent (London, England)
EDUCATION, EDUCATION, education went Labour's election slogan, but rows over class sizes, disruptive pupils and talk of teachers boycotting exams mean that independent schools are flourishing. But recent figures from the Independent Schools Information Service show fees rose by 7 per cent last year. Even the average day-school fees are over pounds 8,500 a year. Boarders typically cost their parents almost pounds 16,500, and the best-known schools charge considerably more.
Independent schools take more than 500,000 pupils in Britain, around 7 per cent of all school students. But fees in the next 12 months will probably increase by a further 10 per cent, according to Anita Griggs, the headmistress of Faulkner House School in London, thanks largely to higher teachers' salaries and the Chancellor's national insurance contributions increase.
Starting to save early is the straightforward way to prepare for those bills, despite wobbling share prices and the endless tales of endowment and pensions mis-selling. Alternatively, if you can afford it, many schools offer a "composition fee", a single sum, paid in advance, which helps reduce the overall cost of future fees.
At the other end of the spectrum, some schools have a limited number of scholarships and bursaries, and most can help families hit by divorce, unemployment or the illness of the main wage earner at critical times in their children's education. There are charities, too, which may also step in at such times to ensure that a child's education is not disrupted. But for the majority, it is a question of saving early and saving often.
"The right mix of savings and investments will vary from person to person," says Anne Bowes of the Bath-based independent financial adviser, Chase de Vere. "The crucial issue is timing. Anyone starting saving with nine or 10 years in hand is probably best off with unit trusts and OEICs (Open- ended investment companies). Historically, stock market gloom provides the right time to invest, though the type of funds people pick will depend on their attitude to risk. People with less than five years to the first school fees will probably need to rely on saving, however low interest rates may be."
Traditionally, the long-term answer was a series of overlapping endowments timed to produce their proceeds one after another. But the first 18 months' to two years' premiums go in commission and setting-up charges. Meanwhile cuts in bonus rates, and the appearance of MVAs (Market Value Adjustments), penalising people taking out funds, make them still less attractive.
Individual Savings Accounts (Isas) are the main alternative. A mini-ISA allows you to spread your investments: up to pounds 3,000 can go in a bank or building society savings account, and another pounds 3,000 into unit trusts. A final pounds 1,000 can go into a with-profits plan or other form of insurance.
Alternatively, a Maxi-ISA allows you to invest the full pounds 7,000 into unit trusts, investment trusts or directly into stock and shares.
Isas that meet the government's CAT (charges, access, terms) standards levy a one per cent annual management fee - and nothing else. If you take a tracker Isa following the FTSE index it may be as low as 0.5 per cent. Most general Isas charge more than the government's recommended figure, but not more than 1.25 per cent.
However, the tax benefits of Isas will be less attractive after next April, when dividends from shares held in an Isa will be taxed. Isas in savings plans and corporate bonds will continue to be tax- free, but the whole Isa scheme is due to be reviewed in 2006 and may not be extended beyond that. …