Facing the University Challenge: saving for your child’s education
GEORGE Osborne made it clear yesterday that the Treasury’s pockets are empty. As such, parents hoping for tax breaks and contributions to their savings for their child’s education will likely be doing so in vain. At the same time, school fees are on the increase and the cap on university tuition fees rose last year to £9,000 per annum. With these noticibly rising expenses, parents will be increasingly looking at how they can best save for the years ahead and provide the best education for their children.
Graham Able, former headmaster of Dulwich College and now CEO of the Alpha Plus group of schools and colleges, reports that despite the economic downturn of the last few years prestigious schools are not seeing any downturn in demand, with Weatherby pre-prep facing the prospect of having to turn down 81 prospective pupils this year. No matter the economic environment, it seems parents place the importance of a private education high up in their priorities.
But the burden has now grown. School fees constitute a large cash outflow that used to diminish when one’s offspring turned 18, flew the coop and went off to university. With the advent of top-up fees, this has changed. So your starter for ten in the university challenge is: “Should parents be saving for their children’s university education?”
Dr Terrence Kealey, the vice chancellor of Britain’s first entirely private university, the University of Buckingham, is unequivocal: “the best present that a parent can give a child is to leave university without debt. In order to achieve this, they should prepare in advance.”
So how do parents go about preparing for the payment of such a large sum? Petronella West, director of wealth management company Quorum Investment, who estimates parents would have to save £59,836, says: “What we find the most important step, and something that we do a lot of, is cash flow modelling to plan for the future, irrespective of the point at which the client has decided to start saving. You should always consider your budget and the flexibility of payments, your time horizon for the investment and your tolerance to investment risk. Risk can be mitigated and managed via suitable asset allocation. Don’t put all of your eggs in the same basket and hedge your bets by investing across the spectrum of asset classes, investment styles and money managers.”
THE OPTIONS AVAILABLE
Turcan Connell is one of the few asset management firms around that currently offers a fund designed expressly for the challenge of helping parents and grandparents save towards the cost of university education. Structured as a trust, it provides a fully managed framework which allows a gift, or series of gifts and it is targeted at those who wish to set aside capital for the specific objective of funding education while at the same time reducing their inheritance tax liabilities. According to joint senior partner Douglas Connell, “the cost of further education is an increasing source of anxiety for many families. Parents and grandparents are rightly concerned about the financial barriers which are being created and many of us are worried about graduates starting their careers with the millstone of significant debt weighing them down.”
But with specialised funds thin on the ground, and the government not in position to throw out any gifts in the form of specific tax breaks, Gemma Godfrey, head of research at Credo Capital, points to easier ways that parents can save: “The Junior ISA, scheduled to be phased in this autumn, is a welcome prospect for parents wishing to save. The maximum amount allowed to be invested is yet to be announced, but as a guide, the Tax Incentivised Savings Association has recommended either £3,600 (bringing it in line with stakeholder pensions) or the adult cash ISA limit (£5,340 after April), to increase with inflation each year. This would certainly aid parents and has the benefit of contributions being locked in, meaning that investments couldn’t be removed from the fund until the child reaches 18.”
So the top tips to succeeding in the university challenge? Plan your cash flows, start saving early and take advantage of all the beneficial tax schemes in your grasp.
UNIVERSITY FUNDING APPROACHES
Haig Bathgate
Turcan Connell Educational Fund
A trust deed is used to appoint the individual trustees.
The funds are placed into an offshore bond, which is an investment wrapper issued by an offshore life company offering significant advantages in managing investments for a trust. Investments can be made from £50,000 upwards; and additions to be made in increments of up to £2,500 thereafter on a monthly, quarterly, annually or ad hoc basis.
Turcan Connell offers several different strategies aimed at providing diversified solutions with active asset allocation and fund manager selection.
Petronella West
Investment Quorum Wealth Management
Vehicles to consider:
Regular payments into a stocks and shares ISA
Regular payments into a maximum investment plan
Making use of index linked national savings certificates (when available)
Regular savings into unit trusts/OEICs
Risk can be mitigated and managed via suitable asset allocation. You should be wary of putting all of your eggs in the same basket. At the same time, you should hedge your bets by investing across the spectrum of asset classes, investment styles and money managers.