Conal Gregory: How to cope with the soaring costs of a private education

Private schooling is a major financial commitment and needs good planning. With the cost of fees continuing to rise above inflation, the earlier your money can be invested, the better chance it has to pay all or a major part of the expense.

To delay will make independent school provision even more difficult to afford.

While overall only around seven per cent of children are educated at non-state schools, this proportion rises dramatically through the age groups with around 15 per cent of pupils aged 16 and over attending independent schools in England.

Start by gaining an understanding of how much money will be required and by what instalment dates. This will allow you to plan more effectively and to check if you are on target.

Over the last decade, school fees have regularly outpaced both Consumer Price Inflation and UK wage growth.

Excluding nurseries, they rose 3.4 per cent between 2017-2018 but with wide regional differences as well as between day and boarding.

“If school fees increase by an average five per cent a year, it would mean that fees per term could double from the time a child starts primary school to when they finish the sixth form,” warns Richard Harwood, regional financial planning manager at Brewin Dolphin in Leeds.

The average annual fees for a senior school are now £17,232 but exceed £40,000 for boarders at the most prestigious.

This means the cost of sending a child for all their schooling to the private sector could exceed £250,000 or for just the secondary period by over £165,000.

On top of fees, there will be extra costs for clubs, trips, uniforms and sports kit. There is the risk that 20 per cent VAT could be imposed if Labour came into power.

To meet the likely costs, Kelly Kirby, chartered financial adviser at Chase de Vere in Leeds, calculates that £7,800 annually or £650 monthly would need to be saved, assuming investment growth of five per cent per annum after charges.

With such a substantial undertaking, which may involve friends like godparents and family, professional help from an experienced independent financial adviser would be sensible.

They can both work out cash flow modelling which will be the cornerstone of a good financial plan and guide on technical areas such as using a trust.

Regularly review the likely expense and take into account any changing circumstances, which may be a change of school and their relative costs and a change in the family, with perhaps additional children, as well as a scholarship.

Harwood recommends that parents have life assurance with critical illness and ideally income protection cover to ensure funds are still available, even in the event of illness or death.

Some parents do not plan, thinking they will meet costs from their disposable income or personal savings. Whilst this can sometimes work out, diluting later earnings can impact on long-term financial goals, such as contributing adequately to a pension.

If a child’s parents find their circumstances change, such as redundancy or divorce, or perhaps extra expenses they have not planned for, school fees may become unaffordable.

In the case of grandparents looking to assist their grandchildren, financing their schooling can prove a popular way to pass funds down the generations.

With the current seven-year term for gifts, future inheritance tax liability can be reduced and grandparents can enjoy seeing the youngsters benefitting. Fees could be paid in one lump sum with school bursars likely to give a useful discount, funded from pension income or by setting up a trust.

Grandparents could also fund through releasing some of the value in their home through equity release. This is effectively a loan secured on a property and would create an instant fund.

“Where grandparents are involved, from a tax perspective, it is really best they do this directly rather than by gifting money to the parents,” advises Jason Hollands of Tilney. “Regular gifts out of surplus income which do not affect their own lifestyle are exempt from inheritance tax and could therefore be used towards part-payment of fees.”

Funding on the basis that the money will be invested for at least 14 years, during which time there will be regular and rising capital withdrawals, requires skill in planning.

More risk, such as equity funds, can be taken in the early days but reduced to less volatile assets and even some cash as the sixth form approaches.

If saving over a short period or wanting to avoid any investment risk, then stick with cash savings and search for competitive rates.

For everyone else, “the best approach is likely to be either a diversified global equity fund or a lower-risk diverse multi-asset such as Investec Cautious Managed or Vanguard LifeStrategy 60 per cent Equity where shares are held alongside other investments such as fixed interest,” says Kirby.

For global, Kirby tips Fundsmith Equity, Rathbone Global Opportunities and the L&G International Index Trust.

Compare funds over three years such as the return on £100, as calculated by Bestinvest, known for its Spot the Dog research.

For UK all company funds, Jupiter UK Growth and LF Woodford Equity Income actually lost £14 and £13 but TB Evenlode Income and LF Lindsell Train UK Equity gained £35 and £33.

In Europe, FP Argonaut European Alpha and Barclays Europe (ex-UK) Alpha lost £7 and £1 whilst Jupiter European and Barings Europe Select gained £34 and £33.

There can be marked disparity even in rising sectors. Looking at the global kennel, Bestinvest reveals UBS Global Enhanced Equity Income rose only £10 but Fundsmith Equity gained £160.

Parents might use ISAs if they are not already using them as a vehicle to build up savings as they are flexible and tax efficient with neither income tax or capital gains tax to pay.

However, as they are personal and not ring-fenced, there could be an impact if there was a divorce.

If anyone had doubts about the earning power of those educated at independent schools by comparison with state ones, historian David Green and economist Francis Kynaston have calculated some telling statistics in their Engines of Privilege, published earlier this year.

Those born in 1958 and attended privately earn seven per cent more by their early thirties. The disparity rises to 21 per cent for those born in 1970 whilst by their forties, the gap is 35 per cent for men and 21 per cent for women.