Parents funding private school fees at expense of pensions and investments

Parents are increasingly sacrificing their pensions and investments to pay for their children’s private school fees, a report from Rathbones has found.

The wealth manager’s report, The family funding gap: how rising education costs are reshaping wealth across generations, found that rising private school costs were leading to many households neglecting their long-term finances.

Among families funding private school fees, 22 per cent said they had prioritised ISAs and long-term investments less to afford education costs, while 20 per cent had reduced pension saving.

More than a third (36 per cent) had cut back on holidays and leisure spending, and 29 per cent had delayed home improvements.

Parents were reshaping education decisions due to the introduction of VAT on private school fees, with 16 per cent postponing enrolling a child in private school and 10 per cent had moved or planned to move a child out of private education.

Nearly a quarter (24 per cent) of families said they had absorbed the higher costs but with financial strain.

“As families prepare for a new school year, many are finding that the true cost of private education extends far beyond the school fees themselves,” commented Rathbones financial planning director, Amanda Cook.

“The pressure is forcing households to make difficult trade-offs, with some reducing pension contributions, scaling back investment plans and dipping into savings to fund educational opportunities.

"The introduction of VAT on private school fees has amplified those pressures. While many families have chosen to absorb the additional costs, a significant number are doing so with financial strain, while others have delayed enrolment or changed their schooling plans altogether."

The report stated that education was increasingly becoming one of the UK’s defining intergenerational financial planning challenges, as parents and grandparents take on a greater share of education funding.

Almost half (46 per cent) of respondents said education costs were likely to impact their retirement planning, while 67 per cent believed pensions being brought into the scope of inheritance tax would increase their motivation to fund education during their lifetime.

More than four fifths (81 per cent) felt rising education costs were making life chances increasingly dependent on family wealth.

"The cost of education has become one of the defining financial planning challenges facing modern families,” said Rathbones financial planning director, Ed Wood.

“Parents and grandparents increasingly find themselves balancing educational ambitions against retirement security, long-term investing and broader financial resilience.

"Our research shows many families are funding educational opportunities by making sacrifices elsewhere, whether that's reducing pension contributions, drawing on investments or delaying other financial goals. That's why education funding should be considered as part of a wider financial plan rather than in isolation.

"We are also seeing education increasingly become part of intergenerational wealth planning. Many families would rather provide meaningful support when it can have the greatest impact, and with unused pension assets due to fall within the scope of inheritance tax from April 2027, the links between education funding, retirement planning and estate planning are becoming increasingly important."

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