Easy does it for term assurance
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Your support makes all the difference.UNIT trusts with personal equity plan wrappers offer a flexible and tax efficient way of saving for school fees and university expenses.
The Association of Unit Trusts and Investment Funds (Autif), in a recent fact sheet on school fees, says that current estimates put the average cost of seeing a child through fee-based primary and secondary schools at pounds 100,000. A university student whose parents have a joint residual income of more than pounds 35,000 will receive no government grant, but will need around pounds 4,000 a year to survive.
According to Autif, most school fees schemes are simply 'with profits' endowment policies, which offer security, but their fixed-term duration and dependence on an uncertain terminal bonus make them less than ideal. Unit trusts have the benefit of lower charges than insurance-linked products and lower surrender penalties.
The stockmarket should also outperform most other types of investment in the longer term and the tax advantages of a Pep provide a benefit most endowments cannot match, says Autif.
Circumstances can alter. Some school fees plans are linked to a particular school or named child and have an inflexible time structure. If the family moves and finds a good state school, or if the child develops special needs, the unit trust portfolio can be put to other uses.
Peter Edwards, a partner in Premier Unit Trust Brokers, says that ideally there should be five years between handing a lump sum to an investment manager and starting to draw fees. School fees are no different from growth portfolios needed for other purposes, except that the timing and amount of outflow are predictable. He says that because of the termly outflows, the portfolio must be geographically diversified and cannot take chances.
'An investor has to fight against being sucked into exciting opportunities. He cannot afford to be overweight in any one area.'
If there is no time factor - a retirement portfolio where retirement is 10 years away - opportunities can be chased and rapid growth can be followed by a period of low or no growth. But a school fees portfolio must be doing something all the time.
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