Back to school, back to school fees

Ah! The start of a new school year – the joys of trying to gather together all the sports kit and school books that you stowed away in July thinking that September was weeks away. There’s nothing like last-minute preparation. Great for uniforms, but not for planning school fees.

If you are considering independent / private schooling as a future (or current) option for your children, achieving careful financial planning as early as possible will help you to gauge affordability, maximise your options for fee payment and could save you substantial amounts of money in the future. If your children are already at private school, you will no doubt have had school fees on your mind way before the start of the new term.

School fees, pupil age and inflation

The Independent Schools Council (ISC) Annual Census 2014, which is based on data gathered in January 2014 from the ISC membership of over 1,250 independent schools, states that the overall average termly fee across the membership is currently £4,998 (excluding nursery fees). The average boarding fee is £9,596 per term and the average day fee is £4,241 per term. Fees will of course vary depending on factors such as geographical location and reputation, and the differences can be extreme.

It is also important to bear in mind that school fees do not remain level. The amount you pay will increase in two ways. Firstly, the fees will increase by school year/pupil age – i.e. you will pay more for a child in Year 6 than for a child in Year 2. Secondly, fees across the board are likely to increase every year by far more than inflation.

ISC figures suggest that the cost of sending a child to private school has risen by approximately 40% since 2007. In its Annual Census 2014 the ISC notes that the average fee across its member schools (excluding nursery fees) has risen by 3.9% from January 2013. This is the lowest annual fee rise since 1994. However, it is still significantly higher than the rate of inflation over the same period which was 1.9% as measured by growth in the Consumer Prices Index/CPI (source: Office for National Statistics).

The ISC Annual Census 2014 may be viewed here:

http://www.isc.co.uk/Resources/Independent%20Schools%20Council/Research%20Archive/Annual%20Census/2014/ISC_Census_2014_11Apr14%20v2%20(2).pdf

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School fees are usually not inclusive of extras

When parents try to assess the affordability of private education, or work out a savings plan for future fees, the figures used are often the basic fees quoted in the prospectus or on the school website. The ‘extras’ are often left out of the calculation and can bump up the cost considerably. From personal experience, the main potential areas of additional expenditure are as follows:

• Uniform: the biggest single outlay takes place when the child joins a new school and requires a whole new set of uniform and sports kit. Bought new, it can be cripplingly expensive, especially if the school has a dedicated shop from which all uniform must be purchased. In this situation, an initial outlay of £400 would not be unexpected. It is worth checking whether any generic items can be bought through other sources and it’s definitely worth looking at the school’s second-hand uniform shop. It’s also important to bear in mind that many private schools change the uniform requirement or design fairly regularly, so you should be prepared to replace items of clothing /sports kit that are ‘out of date’. Particularly frustrating when the ‘old’ kit still fits…
• Out of hours care: many schools now offer wrap-around care (e.g. breakfast and after-school clubs), which are particularly useful where the parent(s) work full-time. However, this service comes at a cost, which is often forgotten in budget planning. As an example, the cost of putting a Year 6 child in one local private school into breakfast and after-school clubs every day (care from 7.30am to 6.30pm) would currently amount to nearly £700 per term.
• Trips: in many cases, the cost of outings and residential trips offered by private schools is charged on top of the basic fees. It is sensible to plan in another £100-£200 per term to cover these eventualities, and potentially more for senior school children.
• Lunches: some private schools charge extra to provide lunch, whereas for others this is a service included within the basic fees. If lunch is not included, this could add in the region of a further £100 per term to the bill.
• Extracurricular lessons and clubs: there will often be a wide range of additional activities available, from music lessons to sports clubs. Again, most of these will cost extra - for one-to-one piano lessons alone, for example, I would suggest factoring in another £120 per term.

 

It’s easy to see, therefore, how the ‘extras’ can mount up – for a child entering a new school and requiring wrap-around care five days a week, the additional costs over and above the basic fees could well amount to over £1000 in the first term. 

Funding 

 

Early preparation is key. Paying for school fees out of net income (after-tax income) can have a significant impact. For example, a year’s school fees of £15,000 would be £25,000 before tax for a 40% taxpayer. However, with some forward planning, this situation can be at least partially improved. Strategies to consider include:

 

• Saving / investing: As early as possible. ISAs (or New ISAs/NISAs as they are now known) are a tax-efficient way to put aside money every year for future private education commitments. The NISA allowance for the 2014/2015 tax year is currently £15,000 and this can be invested in stocks and shares, cash or a combination of the two, according to your needs and your attitude to risk. Obviously the earlier you start saving, the more you can accumulate before school fees begin.
• Scholarships and bursaries: It is sensible to investigate the availability of scholarships and bursaries. Bear in mind, though, that bursaries are generally means-tested, although every school will have a different system in place. Scholarships are awarded for prowess in a particular academic or other area, such as music or sport.
• Family help: It may be the case that grandparents or other family members are willing to help out with school fees. If this is the case, a ‘bare’ trust arrangement could be a tax-efficient way for them to provide support. A ‘bare’ trust can be set up by anyone for a specific child or children. The trustees will withdraw money as required to pay towards the school fees. Gifts to the bare trust are usually treated as Potentially Exempt Transfers (PETs) and will usually fall out of the estate of the donor for Inheritance Tax purposes after seven years.

 

Summary 

 

Private school fees can be a significant drain on your household income and advance planning is the key to assessing affordability and minimising the financial impact as far as possible. If you would like support and advice on planning for school fees then please do not hesitate to contact the team at Chapters Financial, who will be able to help you further. No individual advice is provided during the course of this blog. If you would like to receive further information regarding your own family situation and circumstances, please contact the Chapters Financial team in either Guildford or Woking.  

 

 

Vicky Fulcher Dip PFS

Trainee Financial Planner

  

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

 

 

Financial Review, but also re-balance

At Chapters Financial, we have always noted the benefits of clients reviewing their finances on a regular basis to ensure their existing planning meets with their needs and objectives. Individual circumstances change, markets change and the asset allocation of funds can also change. A review may occur once a year or more regularly, dependent on the needs of the client.

The asset allocation of an investment portfolio is informed by the risk profile of a client and the returns that are sought. Over time, market movements can cause one or more asset classes to drift from their initial targets, resulting in the investor holding a portfolio that may not reflect either their attitude to risk or their investment goals. Rebalancing, as one financial planning solution, is about controlling risk and ensuring that your portfolio is not overly exposed to the success or failure of one particular asset class.

Rebalancing can be an important part of financial planning. Simply put, the process involves periodically buying or selling assets in a portfolio to bring it back to its original asset allocation level. However, there is no accepted industry-wide ‘best practice’ on how and when to rebalance a portfolio. Some providers offer an automatic rebalancing model as part of a passive investment approach. There is much data to suggest that this can work, particularly if fairly wide tolerance bands on both the upside and the downside are in place to avoid excessive trades and associated charges which could erode returns. However, automatic rebalancing is just that – automatic – client portfolios are rebalanced once they drift beyond set tolerance bands. If this is set to occur at pre-determined times over the year, e.g. quarterly, it will take place even if market conditions at the time are not optimal.

Chapters Financial prefers to take a more active approach to investment management and review. Our view is that calendar-based rebalancing alone is not the best approach – at each review, it is important to consider the prevailing market conditions, the specific circumstances of the portfolio in question and to tailor the solution to the needs of the client. We are all different and our investments are likely to mirror this.

At a review, we would anticipate examining the performance of the funds, recommending changes where required to improve the potential to meet the client’s investment objectives and also re-allocating fund balances to meet with a client’s attitude to investment risk. Our active approach means that we can take a view on the ongoing performance of each asset class within a portfolio, rather than just following a set of systematic rules for rebalancing. Given the levels of volatility that all financial markets can experience, we believe that this individual and ‘hands-on’ approach offers the best way to work towards our clients’ investment objectives within agreed risk parameters. This does not mean that at a review you would anticipate a wholesale change of your holdings. However, areas of underperformance can be addressed and areas of good performance may see a ‘profit-take’ situation.

As suggested, each of you is individual and your investments are likely to be the same. No individual advice has been provided during the course of this blog. If you would like financial advice on the allocation of your funds/ investment strategy, then please contact the Chapters Financial team in Woking (01483 330800) or Guildford (01483 578800).

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.