Planning to take the fear out of school fees

Published on Friday 26 June 2009 21:07

FEE-paying schools will be sending out invoices in the coming weeks – and for many parents, thoughts will turn to how they can continue to fund the payments.

Almost 32,000 children are educated at independent fee-paying schools in Scotland, around 4.5 per cent of the total number of pupils. In recent years, average fees have risen by between 4 and 6 per cent a year, well ahead of inflation.

Payment options include monthly direct debits, which help spread the cost, or annual lump sums, which may entitle you to a discount.

Financial assistance is available from schools in the form of means tested bursaries, granted on the basis of financial need. The level of support can vary from a free school place to bursaries worth around 20 per cent of the fees. In cases of genuine need, assistance can also be obtained from educational and charitable grant-making trusts. Scholarships are also available.

School fees are a major financial commitment and it is sensible to plan ahead to meet the costs. A good way of doing this is by investing a lump sum in advance or setting up a regular savings scheme.

Isa: The annual individual savings account allowance rises to 10,200 from 7,200 on 6 October for investors aged 50 or over, or from 6 April, 2010 for everyone. You can invest the whole of your Isa allowance in stocks and shares or up to 50 per cent in cash, with the balance in stocks and shares.

By using your annual Isa allowance, you can accumulate a tax-efficient portfolio from which you will be able to withdraw tax-free income and capital to help pay school fees.

Share-save schemes: If your employer offers a share incentive scheme this could be a good time to take advantage, following the substantial falls in share prices in recent months.

In such schemes, employers grant staff options to buy company shares in three, five or seven years' time at today's price or at a discount of up to 20 per cent of that price.

Under a save as you earn (SAYE) scheme, monthly savings must be between 5 and 250. The contributions are paid to a special bank or building society SAYE contract. On maturity, a tax-free bonus is added to the savings. Shares can be transferred into an Isa to help minimise any tax liability.

Life assurance cover: This ensures funds are available to pay school fees if either parent dies before their children have completed their education. You can also include cover that pays out a lump sum on diagnosis of a critical illness, although this does increase the cost of premiums.

You could also take out an income protection plan.

&#149 Sue Hussin is an investment adviser with Johnston Carmichael Financial Services Ltd