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Sample Plan

In this example we are the planning the school fees for 2 young children who will enter private education from the age of 7. The plan covers preparatory and senior schools for both children.

Here is a profile of the school fees schedule allowing for expected school fees inflation.

The education planned is reasonably modest; it covers ages 7-17, there are no university costs and average fees have been applied. The total fees payable are £678,214. At 40% income tax, the actual gross income to pay these fees would be £1,130,356.

Spreading the cost of fees makes them more affordable. The children for this example were born in 2007 and 2009, so there is still 5 years to start saving. Spreading the payments over 25 years would result in the following plan, which shows the annual fees.

The actual regular monthly payment would be £1,974. A draw down mortgage is often used to make funds available as required. It is possible to plan annual income growth into the monthly payments in order to reduce the initial payments.

A very tax efficient method to pay school fees is available using one of our school fees pension plans. School fees pension plans are devised to pay school fees out of the tax free lump sum that can be taken at retirement age. For higher rate tax payers, every £100 pounds invested would result in a £66.67p contribution by HM Revenue and Customs. The following picture illustrates the return on investment for a school fees pension plan with a 20 year mortgage and a retirement planned for 25 years' time.

Monthly payments for this plan would start at £2,401 (compared to the £1,974 for simply spreading the cost over 25 years). Over the 25 year period an additional £498,408 would be paid into the plan, however a pension pot of £2,034,942 would be realised (subject to average growth predictions) and this is after the lump sum has been used to pay for school fees. This represents a profit of 308%.

This type of plan is applicable to people who are looking to improve their pension and are prepared to pay a bit more (over an extended period) than the absolute minimum. In this particular case, returns include over a million pounds of profit resulting from tax relief. This is typical for school fees pension plans. Contact us to find out more.