First education plan from friendly in a decade

Australian Unity has launched an education savings plan, the first issued by a major friendly society for more than 10 years.

Over 50s launched a product in the early nineties, but found its tax ruling withdrawn and had to refund the money.

Australian Unity has been working on this new, tax-effective plan for about two years and sought support from Treasury to get the plan approved by the ATO. The company also looked at similar schemes in both the US and Canada as part of the research into launching a new style of product in Australia, says Australian Unity consultant Ross Higgins, who has designed the product.

The plan is designed for higher education and can also be used as part of vocational training. A secondary education option is still some time away, says Higgins, but will be an option to the plan in the future.

The benefits are portable between children in the investor's family and the invested money can be withdrawn after 12 months of starting the plan. All invested monies after this period are paid out with any accrued earnings, which is a major difference between the AU product and the only other education savings plan available in the Australian market provided by the Australian Scholarship Group.

The minimum investment is $500 or $2500 for a lump sum. The savings plan is $50 per month. There is a $150 enrolment fee and an investment management fee of 0.75 per cent. There are three investment strategies, short-term; medium term and a long-term portfolio.

Australian Unity's regular collection of fund managers will be managing the investments, including UBS, Credit Suisse, Wellington and J B Were.

Higgins says the savings plan has been designed to receive contributions from other family members, such as grandparents, or from groups such as friends, godparents or trusts.

"It's a marvelous grandparent product as we have built in estate planning features for them," he says. The plan also has savings or lump sum provisions that meet pension-gifting rules.

The tax structure of the savings plan includes a new 'cash' refundable tax credit system that is applied if the beneficiary has a marginal tax rate of less than each of the fund's pre-paid 30 per cent tax rate.

Australian Unity group managing director Mark Sibree says the product has been engineered with planners in mind.

"This product will allow planners to contact many inactive clients who have children and offer them a relevant product," he says.

"The plan also allows planners to provide an advantageous tax-planning product to clients with high incomes that also benefits their children."

Commission for planners is 3 per cent upfront and a trail of 0.3 per cent. "It is a trail over a long-term product in many cases," Sibree adds.

The launch of the savings plan is also another move to attract new, and younger, investors to the society, he adds. "The plan is a good positioning product for us.

"It has the appeal to attract a new sort of investor to Australian Unity," he says. "We are not going to attract vast inflows to the fund in the first instance, but we hope to attract lots of new investors."

The potential market for savings plans is conservatively estimated at about $4 billion.