Investing for a child's education: The myths about education

Myth – Old fashioned. No!
Some education savings plans have been around for a number of years and do not offer modern investment options and features. The Lifeplan Education Investment Fund has been designed and built to meet the standards expected by contemporary investors and their advisers. The Lifeplan Education Investment Fund offers flexibility, attractive features, competitive fees and a range of professionally managed investment funds from some of the most respected names in funds management: AMP, BT, ING, MLC and Perpetual. It has a ‘recommended’ rating by Aegis and has been approved by some major dealer groups.

Myth – Restrictive. No!
There are no age restrictions like some other education plans and the one investment plan can be used for a wide range of education expenses over a lifetime of education. Investors can put a maximum of $350,000 per child into the Lifeplan Education Investment Fund and the earnings and growth on the value of the investment is not limited.

Myth – Inflexible. No!
If an investor’s circumstances change, the nominated student can change with no fees or taxing event. This simple feature is important because it counters the proposition that special trusts, which can be costly to set up and administer, give more flexibility and control than education funds. The Lifeplan Education Savings Plan can even outlive its investors - the unique “plan guardian” feature provides for a specified person to operate the funds following the death of the original investors.

Myth – Forfeit earnings. No!
Some education plans may penalise investors through forfeiture of earnings if the funds are not used for education expenses or even specific types of courses. For example, if the investor’s circumstances change and they need to use the funds for non-education expenses, the design of the Lifeplan Education Investment Fund means that the investor will not be able to gain access to the education tax benefit. The investor still gets all the contributions and tax paid earnings, with the tax treatment on earnings that of an insurance bond. That is, earnings are returned to the investor with tax already paid at a maximum of 30% with no forfeiture of earnings and no penalty fees.

Myth – High penalties. No!
The Lifeplan Education Investment Fund has no exit fees or penalties, irrespective of whether funds are used for education or other purposes that are not education related (apart from the reduction in the tax benefit as mentioned above). An important feature that distinguishes the Lifeplan Education Investment Fund is that contributions are always available, for any purpose, for tax-free withdrawal. This is a flexibility feature allowing for changing circumstances although an investor’s primary purpose should be using the Lifeplan Education Investment Fund for education expenses.

Myth – Rebranded Insurance Bonds. No!
The Lifeplan Education Investment Fund is built on the well established insurance bond structure. It is different in that the tax benefits are further enhanced for education related expenses. In effect a bigger tax saving can be achieved because the usual tax paid (at a maximum rate of 30%) for an insurance bond is claimed back from the ATO and is included in the education withdrawal proceeds paid to the student. Also, contributions are not restricted by the insurance bond ‘125% rule’, giving even more flexibility in how contributions are made. The investment bond tax treatment only applies to earnings withdrawn for non-education expenses (not to contributions). Furthermore, investors have the option of making tax-free withdrawals from accrued contributions only, giving them even greater capacity to manage tax affairs efficiently.

Myth – High commissions and hidden fees. No!
The Lifeplan Education Investment Fund has a fee and commission structure that is similar to other types of investment products such as managed funds and superannuation. All fees and commissions are disclosed in accordance with strict disclosure laws in the PDS. Any commissions payable are negotiable with the financial planner and are rebateable to the client. It can be used by both commission based and fee-for-service practices.

Myth – Large lump sums are required to start. No!
The Lifeplan Education Investment Fund does not need a large lump sum to get started. Investors can start with as little as $1,000.

Myth – Locked into contributions. No!
Investors are not forced into a regular contribution plan with the Lifeplan Education Investment Fund. Contributions can be stopped and started to suit investors’ circumstances. Investors can even use the flexibility of BPAY� to make ad hoc contributions as their finances permit.

Myth – Closed down by the Australian Tax Office. No!
From time to time the ATO has closed down schemes promoted as education investment products with tax benefits. It is important to distinguish Lifeplan’s products from these schemes and also to note that the Lifeplan Education Investment Fund is classified as a ‘scholarship plan’ in accordance with the Income Tax Assessment Act 1997. Amendments to this Act were passed in 2003 giving a legislative basis to Friendly Society’s operating such products. The Lifeplan Education Investment Fund is operated under the oversight of the regulatory agencies ASIC and APRA and Lifeplan is required to abide by their rules and regulations.