Planning Process / Education Savings Plan

Education Savings Plans

Education is the key to a world of personal and professional choices in the 21st century.
Australian education experts stress that our children will need a higher level of education and more skilled trained labour to compete in the global economy and ensure job success. However, the alarming cost of higher education will deny many the chance of obtaining better job opportunities.

For most parents (and even grandparents), the escalating cost of post-secondary education and career training for the children they love may come as a rude shock. In fact, it's not uncommon for these costs to run to $50,000 or more, which could be a painful drain on family finances - or even worse - saddle a young person with crippling debt.

The benefits of planning ahead

Preparing and paying for a child's education requires careful planning, and often, discipline and personal sacrifice by both parents and students. Your early involvement in planning your child's education not only builds family cohesiveness, but also fosters a financially secure and disciplined learning environment.

Saving for a child's education is principally not any different to saving for any other long-term investment goal. And by taking a long-term view, you should choose an investment vehicle that will provide you with growth and flexibility.

For most of us, the economic realities of everyday life make it difficult to set aside enough money for long-term goals like a child's education. The best way to save for a child's future is to start early - ideally from the time a child is born.

Do you want to ensure that the child or children you love get the education and chances they deserve?
Do you want to avoid a dramatic drain on family finances in future years?
Do you want to make sure your savings are invested soundly and managed professionally?

In recognition of the potentially escalating costs there are educational savings plans available to, for parents, grandparents or anyone interested in a child's higher education and career training, who want to help but don't have a practical savings plan in place.

There are three kinds of plans for Parents, Grandparents and Sponsors (godparents, other relatives, companies etc). Besides opening new avenues for financing a child's education, the ESP offers sound investment prospects, significant taxation advantages and estate planning features.

The savings plan is structured to cover the costs of higher education and career training, which include (and are not limited to) HECS fees, course fees, books, student union fees, education-related travel and living expenses. And if the nominated child is no longer interested in undertaking further education, the Plan Owner maybe able to nominate another child with an immediate family relationship.

Key Features

Tax-effective
ESPs are purpose-built education products that offer tax advantages for investors.
Plan options
Different plan options are available which include Parents, Grandparents and Sponsor Plans.
Wide course coverage
ESPs can be used for almost any higher education, vocational or career-training course or expense, including overseas courses.
Flexible contribution options
You can invest large or small lump sums, or establish an affordable monthly savings plan.
Control
The Plan Owner always remains in control of the Plan - they can make withdrawals, claims, substitute new education beneficiaries and manage the investment strategy.
Accessibility
Withdrawals maybe allowed in full or part at any time after an ESP has been in existence for 12 months, and thereafter throughout its entire term.
Education Benefit Period
This represents a period of 1 - 10 years over which Education Benefits (value of the Plan) can be claimed.
Residual Maturity Benefits
Any monies remaining at the end of the Plan simply revert to the Plan Owner (or to his or her estate or other Plan Nominees if the Plan Owner is deceased).

Investment options
There is a choice of managed investment portfolios designed to meet different investor risk profiles and investment timeframes relating to the nominated child.

Short Term: This portfolio is designed for investors seeking a conservative risk portfolio by investing primarily in secure fixed interest investments with a limited exposure to growth assets.

Medium Term: This portfolio is designed for investors seeking a balanced risk portfolio by investing in an equal portion of growth and income assets.

Long Term: This portfolio is designed for investors seeking superior returns over the long term, from a portfolio comprised primarily of shares.

Taxation information
Education Savings Plans are tax-effective investments and have been structured to take advantage of Government incentives for long-term savings. The Plans' tax-effectiveness can translate to superior after-tax investment performance.

The tax benefits of an ESP include:

Investment earnings on your Plan are "tax-paid" at just 30%.
Plan owners having no personal tax or capital gains liabilities, nor tax reporting requirements for the Plan, as long as the benefits are used for education and career training purposes.
The Plan's nominated child will have no personal taxation or capital gains liability during the education benefit accumulation stage.

The taxation information provided is general information only and may change as taxation legislation and government policy change. The information does not take into account your individual objectives, financial situation or needs. You should seek your own taxation advice from a professional adviser and read the current PDS before investing.