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Friendly future for fees

“Use it or lose it” is a phrase we have all heard – and probably uttered ourselves. It is one that rang out loud as the tax year drew to a close.

Adults were encouraged to make the most of their tax allowances such as Isas, and parents, in particular, to use stakeholder pensions for children, to put a little more of their money out of the taxman&#39s reach. This is all very sensible but when the phrase starts to sound in favour of stakeholder pensions for children, are we in danger of being charmed by a tax break at our children&#39s expense?

If you are a parent you will know that there is always a more pressing or immediate need when it comes to raising a family. This is not offered as an excuse for putting off planning for a child&#39s future, instead it recognises that due to the time pressures for most families, a child&#39s future soon becomes the present.

So parents need to make the time now to start planning for their child&#39s financial future. You only have to think about past events that perhaps seem more recent in our own mind. For example, can you believe that the Falklands war took place 20 years ago? A baby born then could be going to university now.

Although 20 years is a long way off for many, it is inevitable that there will be a need to provide for an important event or period before a child grows up to reach 50 – the earliest age that a stakeholder pension can be drawn upon.

So why are more people not making provision for the more immediate needs? Are we, as an industry, making clients sufficiently aware of what may lie ahead? Do you include questions in your fact-find to ascertain your clients&#39 intentions when it comes to their children&#39s future?

For example, what are your clients&#39 plans for their children&#39s higher education? Evidence from our own members at Tunbridge Wells Equitable shows today&#39s picture. We asked: “How is the money from children&#39s savings plans being used?”

Education 48%

Bank or building

society account 24%

Car 7%

House 4%

Travel 4%

Wedding 2%

Don&#39t know 11%

The Government has made clear its intention of getting one in two young people into higher education by 2010 and student debt continues to rise (see below). So financial planning for children is no longer a minority pastime.

Parents are also starting to save earlier for their children. Turning 18 or 21 is usually a significant moment in most people&#39s lives, whether it was because of a new car, a big party, an opportunity to travel or to go to university.

For parents, it is also a time when they could really do with a lump sum. There is no question that stakeholder pensions for children are designed for the very long term and one could argue that it is an efficient way of handling potential inheritance issues – as well as providing a welcome lump sum way down the line.

However, the reasons why most parents or grandparents might want to save for their children are relatively short-term compared with the age at which a stakeholder pension can be accessed.

When it comes to “relatively short-term” savings, unit and investment trusts, as well as the Isa-wrapped versions, have their place.

However, if a parent or grandparent is planning for a specific event or date, there is a risk that their savings may be adversely affected by market conditions. It is unlikely there will be the time available to wait for the upturn, so what should be a rewarding moment could turn to disappointment and worry.

Friendly societies&#39 with-profits bonds can be structured in such a way that the payouts can be staggered over the three or four years of the university course – avoiding the possibility of all the funds being “blown” at once.

In an ideal world, maybe stakeholder pensions can play a role within the financial planning for children, provided all the more immediate needs have been catered for – a scenario that is unlikely to be familiar to most parents.

So let us not get carried away with the “use it, or lose it” saying when it comes to stakeholder pensions for children or, in the years to come, they could be telling us that we “blew it”.

annual Cost of higher education

In London Outside London

Cost of Tuition Cost of Tuition

living fees living fees

expenses expenses

Today £7,299 £1,075 £5,936 £1,075

In 15 years £11,372 £1,675 £9,248 £1,675

In 18 years £12,426 £1,830 £10,106 £1,830

Source: The basic cost of living figures are based on the National Union of Students&#39 estimate for the academic year 2001/02, increased in line with assumed inflation of 3 per cent a year. Tuition fees figures from Financial Support for Higher Education Students in 2002/03, published by the Department for Education and Skills

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