Supporting Education and Preserving Wealth in Retirement
Introduction
Retirement brings a welcome sense of freedom and time to enjoy the rewards of a lifetime’s work. For many, it also brings the satisfaction of being able to support children or grandchildren as they pursue education and future opportunities.
Private education remains a valued aspiration for families across the UK. The Independent Schools Council (ISC) reports that 556,551 pupils now attend 1,411 member schools, the highest figure since records began in 1974.¹
However, these opportunities come at a cost. The average annual day fee is now £23,925, rising to £42,459 for boarding pupils.² From January 2025, the addition of VAT on school fees will lift these figures to an average of £28,710 for day pupils and £50,951 for boarders.
Over a full education, that equates to approximately £460,000 in day pupil fees or £815,000 in boarding fees per child. For retirees, who may now depend on investment income or pensions rather than earned income, meeting these costs requires careful and tax-efficient planning.
1, 2 ISC Census and Annual Report, January 2024
At a glance
- Average school fees could reach £460,000–£815,000 per child.
- Private education support can be part of a family legacy plan.
- ISAs, Bonds, and GIAs can provide flexible, tax-efficient income sources.
- Structured withdrawals help preserve capital for the long term.
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Many retirees wish to use their wealth to make a meaningful difference for their family, such as helping fund education. The key challenge is to do this without jeopardising financial independence or long-term security.
With longer lifespans, retirement may span several decades, meaning your savings need to last. Whether you are providing direct financial support to children or grandchildren, or gifting toward their school fees, a measured and structured approach can allow you to give confidently while maintaining stability in your own finances.
Preserving Wealth While Providing Support
Let’s assume that school fees increase by 3.5% per year. Even at that moderate rate, education costs represent a substantial outlay. Many retirees choose to fund these from investment income, pension drawdown, or savings rather than employment income.
Aligning these payments with a broader retirement income strategy helps maintain balance. The goal is to support loved ones while keeping your capital working efficiently to meet your own ongoing needs.
Key tax-efficient solutions
ISAs are one of the most flexible and tax-efficient ways to save or invest, making them ideal for retirees managing income and withdrawals. You can hold cash or investments within an ISA, and all growth, interest, and withdrawals are free from income and capital gains tax.
With an annual contribution allowance of £20,000 per adult (2024/25), ISAs can provide both income and liquidity. Withdrawals can be made at any time, without affecting your overall tax position, which makes them particularly useful for gifting or paying education costs.
If both partners have consistently maximised ISA contributions and achieved 5% net annual growth, this could have grown significantly over the years, providing a valuable pool of tax-free funds to draw on.
*These figures are examples only and they are not guaranteed – they are not minimum or maximum amounts. What you get back depends on how your investment grows and the tax treatment of the investment.
The value of an ISA with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.
The favourable tax treatment of ISAs may be subject to changes in legislation in the future.
Investment Bonds allow you to invest a lump sum and make tax-deferred withdrawals, providing flexibility and potential income over time. Returns within the bond are not subject to immediate income or capital gains tax, making them efficient for retirees managing cash flow.
You can withdraw up to 5% of your original investment each year for up to 20 years without triggering an immediate tax charge. Any unused allowance can roll forward, which provides useful flexibility when paying for termly or annual school fees.
Bonds can also form part of estate and inheritance planning. They may be written in trust, allowing retirees to provide financial support to grandchildren while keeping control over how and when funds are used.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Please note that if the withdrawals taken exceed the growth of the bond, the capital will be eroded.
For retirees who have used ISA allowances or prefer greater flexibility, Unit Trusts and GIAs can provide a way to invest across shares, bonds, and property while maintaining access to funds.
These accounts benefit from a £500 dividend allowance and a £3,000 capital gains allowance (2024/25). While income and gains may be taxable, they can be managed carefully to maintain tax efficiency, particularly when used in conjunction with pension drawdown or other income sources.
They can also be structured to provide regular income or occasional withdrawals to support education costs while keeping core investments aligned to long-term goals.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Many retirees choose to help fund education through gifts to children or grandchildren. The £3,000 annual gifting allowance (£6,000 for couples) allows you to transfer wealth without creating an inheritance tax (IHT) liability.
Larger gifts may also be exempt from IHT if the donor survives seven years after making the gift, or if the payments are made from regular surplus income. These can be an excellent way to reduce the taxable value of an estate while directly benefiting loved ones.
Under “Dispositions for the maintenance of children” rules, parents and grandparents can also pay education fees directly without these payments being treated as taxable transfers.
A disposition is exempt if it is:
– made in favour of a child of either party to a marriage or civil partnership, and
– for that child’s maintenance or education before the age of 18, or while in full-time education.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Further criteria applies within the HMRC IHT Manual IHTM04175 which is subject to change.
Around one-third of private school pupils receive some form of financial assistance.³ Bursaries are awarded based on family means, while scholarships recognise academic, musical, or sporting excellence.
Encouraging your children or grandchildren to explore these options can help make private education more affordable, especially if you are managing multiple financial goals in retirement.
3 ISC School Fee Assistance, April 2023
Some retirees prefer to pay school fees in advance, either to lock in discounts or to simplify future commitments. This can be particularly attractive for those holding cash from a downsizing or an investment maturity.
However, prepaying fees ties up capital that could otherwise remain invested or available for healthcare, emergencies, or other needs. The decision should be considered carefully as part of a broader financial plan that maintains sufficient liquidity and reserves.
Wealth Preservation and Income Planning
Retirement is about making your money last while enjoying the freedom to use it meaningfully. Supporting family education can be deeply rewarding, but it must sit comfortably within your income and capital strategy.
Consider reviewing your drawdown plans, annuities, or investment income streams to ensure withdrawals for school fees do not affect your ability to maintain your lifestyle or cover future care needs. Tax-efficient structures, diversification, and regular reviews are essential to keep your wealth working effectively throughout retirement.
Working with a financial adviser can help you coordinate these moving parts and maintain a clear path toward both your children’s education and your own financial independence.
Passing Wealth to the Next Generation
Private education can be one of the most valuable gifts a retiree can help provide, offering lasting benefits to children and grandchildren. The key is balancing generosity with prudence, ensuring you maintain sufficient income and capital for your own needs.
With careful, tax-efficient planning and the right mix of investment, protection, and legacy strategies, it is possible to support your family’s education goals while keeping your wealth secure for the years ahead.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time and depend on individual circumstances.
Should you require more information or have particular questions, we invite you to contact us at your convenience.
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Nauman Gondal
Chief Executive Officer
