Start earlyIf you can start saving as soon as your child is born, seriously consider it. “Children start school at the age of five, so you can grow a meaningful sum before they start,” says Sarah Lord, managing director of Killik Financial Planners. The later you leave it, the harder saving may become. “If both parents are going back to work, the costs of nursery bills, nannies and au pairs can quickly eat into those savings,” she says. “Your saving strategy should depend on when the fees are due,” says Steve Caps, director and financial planner at Ramsay Brown Financial Services. “If you’re close to paying fees, you’re more limited in where you can invest, because you don’t want to risk losing money. Deposit accounts aren’t currently paying significant amounts of interest. Isas will, at least, reduce taxation.” Junior Isas aren’t much use when it comes to school fees because they can’t be accessed until the child has reached 18, so parents will have to use their own Isa allowance or a different savings vehicle. According to Maike Currie, investment director for personal investing at Fidelity International, it would take seven years of maximising your Isa allowance, assuming an annual growth rate of 5 per cent less platform charges, to amass just £131,957 – less than half of the total needed to send a single child to private day school. Your Isa portfolio should reflect your aims. Will you use your Isa to supplement your income as you pay the school fees, or use your savings to pay the fees? Either way, saving as early as you can will allow you to benefit from compounding over time.
Once you’ve run down your savings, older parents may consider drawing a tax-free lump sum worth 25 per cent of their pension to see their children through to 18. With interest rates so low, under-55s might look at increasing their mortgage to pay the school fees, and use their lump sum to pay off their mortgage debt once they can access their pension. But remember, your pension is designed to provide an income in retirement. Spending, rather than investing it, could seriously affect your quality of life in retirement, and you can’t reinvest that money at a later date. Read more: Five tips to get the most mileage from your Sipp