Feathering your prince or princesses nest20 July 2016
This weekend marks the third birthday of Prince George. As he becomes a toddler, and soon progressing on from his nursery school to primary school, if he emulates his father’s upbringing education could quickly become rather costly. Everyone knows that bringing up children can be expensive, however recent research shows that the average cost of raising one child to the age of 21 has reached £230, 000.*
If George attends a pre-prep school such as Prince William’s old haunt Wetherby for example, the fees alone will be an eye watering £6, 540 per term. Even if your child attends a state school, latest figures have revealed that this could amount to more than £800 per child per year once you factor in school trips and uniforms.** Therefore, unless you have a royal bank balance, it is important to start tucking money aside to ensure you are able to cater for your own little prince or princess at the earliest opportunity.
Jason Hollands, Managing Director of Tilney Bestinvest, gives his top give tips for saving for ensuring you are able to provide a feathered nest for your next of kin.
Start ISA Investing
“You can put money aside within your own ISA and simply earmark it for your children. For the tax year 2016/17 the ISA limits have risen to £20,000, doubled to £40,000 for a couple. ISAs are a great tax-free way to save money, and due to the easily accessible nature of ISAs, they are an ideal haven for putting aside money that can later be used for school fees or other expenses, where the parents retain control.
Hollands suggests the following funds for investing on behalf of your children: "for those willing to take a very long term approach, we like the Scottish Mortgage Investment Trust. Confusingly this doesn’t invest in Scotland, nor in mortgages and behind the venerable name, sits a high conviction investment portfolio that backs growth companies from across the globe such as Illumina, which is using research into DNA to develop new treatment for disease, and Baidu the Chinese equivalent of Google. Pleasingly the trust also has very low ongoing charges of 0.45%.
“For those investments where you have a shorter investment horizon of up to five years until you want to access the investments in order to help with the school fees, there’s a strong case for selecting a low volatility investment approach but one, nevertheless that aims to stay well ahead of the meagre returns on cash. As an alternative, parents might look instead at absolute return funds – those which pursue diversified investment strategies with the aim of delivering a little bit of return, often with low volatility. The Invesco Perpetual Global Targeted Return fund has 25-30 individual investment strategies running within it at any given time, which cover equities, bonds and currencies. The aim is positive returns in all market environments on a rolling basis, aiming for returns that are 5% above interest rates but with low capital volatility, although there are no guarantees."
Open a JISA
“It is becoming increasingly difficult to get on the housing ladder, and this is just set to get even more difficult in years to come. If you would like to save for your children so that they can have a kick start in putting together a deposit, or indeed help with the ever increasing cost of university fees, then another way to save money for your children is through a Junior ISA; a tax-free savings account for children.
“Simple to set up through an online application form or through the post, a Junior ISA comes in two types; a ‘Cash’ and a ‘Stocks and Shares’ Junior ISA, such as Bestinvest’s Select Junior ISA***. With a stocks and shares Junior ISA, your cash is invested and you won’t pay tax on any capital growth or dividends you receive. Your little one can even have both types if you would prefer.
“The maximum total amount paid into a Stocks and Shares Junior ISA for this tax year is £4, 080. While the money in your child’s Junior ISA can’t be taken out until they are 18, it is the parent or guardian who opens it who is responsible for managing the account. If your child is 16 or older they can become the registered contact for their Junior ISAs and open a regular ISA or when they turn 18 they can take out any money in their account.
“A Stocks and Shares Junior ISA is a great way to set your little prince or princess on the right track in life. Young people are increasingly beginning adult life with significant financial burdens on their shoulders and parents who are in a position to do so should start saving at the earliest opportunity. Additionally, providers such as Bestinvest allow your child’s Junior ISA to be converted into a standard Bestinvest Select ISA on the child’s 18th birthday so they can continue to benefit from the tax savings, perhaps to spend on university fees or on a deposit for their first home.”
“If you're thinking of taking a very long-term approach, and looking to put your child in good stead for their own retirement, then you can also open a pension in their name. You can currently contribute up to £2,880 each tax year, with the key added bonus that it is then boosted by the Government. If you contribute the full amount to your child’s pension, it will then receive a £720 uplift form the Government, making the total amount contributed £3,600. Let us not forget that the pension will also grow free of tax. When your child reaches 18, ownership of the pension will transfer to them and they can start making their own contributions, although they won’t currently be able to access these monies until their 55th birthday at the earliest.
“Saving little and often, perhaps via Direct Debit or a standing order can ease the financial burden of putting money aside for the future. The younger generations are increasingly worried about the rising costs of tertiary education along with rising house prices, meaning that pensions are often left until later on in their lives. By starting the ball rolling for your children it could mean that it becomes second nature for them to contribute to their pension, or if other expenditures do become a priority, such as buying a home, then it means they have a cushion to kick start their pension and do not have to start from scratch in their mid-30s.”
*Research: LV The cost of raising a child: https://www.lv.com/life-cover/cost-of-a-child
**Research: The Children Society Poverty Commission Report http://www.childrenssociety.org.uk/sites/default/files/P366%20TCS%20Poverty%20Commission%20Report_LR.pdf
***For more information on Bestinvest’s Junior ISA please visit: www.bestinvest.co.uk/juniorisa
The value of investments, and any income derived from them, can go down as well as up and you may get back less than you originally invested. This press release does not constitute personal advice. If you are unsure about the suitability of any investment, you should seek professional advice. Past performance is not a guide to future performance.
Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change. Different funds carry varying levels of risk depending on the geographical region and industry sector(s) in which they invest. You should make yourself aware of these specific risks prior to investing.
Investment trusts are similar to funds in that they provide a means of pooling your money but they are publicly listed companies whose shares are traded on the London Stock Exchange. The price of their shares will fluctuate according to investor demand and changes in the value of their underlying assets.
Targeted Absolute Return funds do not guarantee a positive return and you could get back less than you invested, as with any other investment. Additionally, the underlying assets of these funds generally use complex hedging techniques through the use of derivative products, which can carry additional risks which may not be immediately apparent.
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