How to plan for spiralling childcare costs
Author: Simon Wigglesworth
The spiralling costs of childcare are a real concern for many with the costs for all aspects, whether it is for private nursery fees, wrap-around care such as after school clubs or private school fees, increasing at a far higher rate than both inflation and average earnings making it therefore harder and harder to afford.
Saving for future costs is essential. The majority of families are now having to pay more attention to how they plan and save for childcare costs to ensure that childcare fees in future years can be met. Keeping your money in a cash account with the bank is going to reduce in value in real terms when the cost of childcare is increasing so steeply. To maximise returns on savings and investments, look at investing in ISAs to make sure that any growth that is achieved is then tax free. It may also be sensible to take on some investment risk in order to try to achieve growth on those savings, which would at least ensure you have a chance of keeping up with the increasing rate of childcare costs.
It’s important to be aware of where else you can get support with your costs. The Government offers help in various ways including Child Tax Credit and you could be eligible for this for each of your children if they’re under 16 or under 20 and in approved education or training. Child Tax Credit won’t affect any child benefit and how much you get is dependent on your situation. You may also be eligible for Working tax credit and Child Benefit, which will help towards the cost of child care if you are eligible for it. Universal Credit may also be an option instead of certain benefits if you’re on a low income or out of work but you won’t be able to claim tax credits at the same time.
There are also further childcare benefits and grants that can be claimed for those in School, Further Education or Full-time Higher Education. It is a complex area but worth taking advice or reading up on to make sure you are not missing out. Visit www.gov.uk for more information.
You really need to ensure you receive the maximum amount of Child Benefit. Those earning over £50,000 start to lose it at a rate of 1% for every £100 over this earning amount. By the time you reach £60,000 Child benefit will be lost, which could be as much as £1,789 a year for families with two children.
Investing in your pension is a wise move. Pension contributions can keep your adjusted income below the threshold so to make sure you receive the full benefit entitlement. This could result in an equivalent tax relief of 57.9% on these pension contributions.
Make full use of childcare vouchers. Most employers offer this scheme with some even paying childcare costs direct and larger employers may even have on-site nurseries or crèches. This means that any payment towards child care can be made out of gross income before tax is calculated. You will therefore save tax thus alleviating the cost of the care. Childcare vouchers can be used for all sorts of care including nurseries, nursery classes, pre-schools, registered child minders and many holiday clubs. However, they cannot be offset against the higher rate tax any longer but there is still a saving to be made.