Saving early can help parents prepare for the pitter patter of tiny feet, says Liam Ward-Proud
THE CHANCELLOR’S proposed reforms to the childcare voucher system this week are welcome news for families with both parents working. Parents earning less than £150,000 a year each will effectively be able to claim up to £1,200 back on childcare costs when the changes are phased in from autumn 2015.
There are some clear winners and losers in this new scheme, however. Unlike the existing voucher system, the new payments are available per child, meaning larger families are likely to benefit. Families with one non-working parent, on the other hand, will now receive no help towards childcare costs, with George Osborne describing the decision as a “lifestyle choice”. These payments, designed to make returning to work more financially viable for parents, will also apply to those who qualify for the full-time carer’s allowance.
Nonetheless, statistics released by the OECD show that a couple on double the UK average wage with two children will spend 30 per cent of net family income on childcare, compared to an OECD average of just 12 per cent.
Assuming both parents opt to return to work, they will need to decide which childcare option suits them best. Nurseries are cheap relative to private nannies, with recent figures from the Family and Parenting Institute finding an average annual bill of £11,000 for a child under the age of two. NannyTax’s 2012 Wages Survey, by contrast, shows that the annual gross salary is £26,017 for a live-in nanny and £34,124 for a live-out nanny.
When weighing up nurseries and nannies, it is important to consider the amount of childcare required outside of nursery hours. If late hours and working weekends are a likelihood, the flexibility of a live-in nanny may prove attractive. Parents should also consider the combined cost of sending multiple children to nursery. Paying nursery fees for two children can increase the total outlay to almost as high as cheaper nannies.
Parents could also consider the cheaper (although officially unqualified) option of an au pair. According to the website Baby Centre, if your au pair works 25 hours each week, you will need to pay a minimum of £65 per week.
However, brute costs are not the only thing to bear in mind. Domestic employers have to comply with many of the same payroll obligations as commercial employers, which means families with a nanny must deal with, for example, National Insurance contributions, tax rates and Employer’s Liability Insurance, which can be time-consuming. It might be worth consulting one of the specialist payroll services like NannyTax, which handle these requirements for an annual subscription fee of £276.
Regardless of the type of childcare, the first step should be to save. Danny Cox of Hargreaves Lansdown encourages couples to think about nannies as “just one of the many costs to start planning for as soon as possible”. An Isa should be your first port-of-call, offering a tax-efficient way to grow savings.