Need to know:
- The cost-of-living crisis has underlined the need to improve people’s level of savings.
- Workplace schemes such as the individual saving account (Isa), lifetime Isas and sharesave already exist, with trials underway for ‘sidecar savings’.
- But employers have to up their game when it comes to communicating with employees.
According to research published by Moneysupermarket in August 2022, one in four UK adults has no savings at all, and this rises to half of those aged under 25, leaving them dangerously exposed to unexpected situations, such as the current cost-of-living crisis. The figures are a damning indicator, too, of the failure of workplace savings schemes, around which there was a considerable amount of noise a few years ago, but which ultimately did not take off in any meaningful way.
Yet the concept of encouraging people to save, and offering them the potential to do so through their workplace, not only makes sense from a societal perspective but also provides employers with the means to foster appreciation and engagement from staff.
There are a number of options employers could consider, including workplace individual saving account (Isa) or lifetime Isas (Lisas), says Andreas Hunter, employee benefit consultant lead at Buck. “Lisas are specifically dedicated to buying a first home or for use in retirement,” he says. “These can offer interesting options for employees who are working towards specific goals and can go a long way in helping people plan for their future and set up retirement plans that alleviate some financial pressure.”
Workplace savings products such as these have the advantage of allowing staff to make payments before they even get the money, through payroll.
Nest Insight recently held a trial looking at the concept of so-called ‘sidecar savings’, under which pension contributions above the minimum level could be diverted into a savings account. Alistair Dornan, director, people experience at Gallagher, says: “Using the same auto-enrolment principle familiar with pensions, the initiative helps employees to create a savings pot they can access in an emergency. Savings from payroll fill the pot to an agreed level, and if the pot is used, savings recommence to replenish the sidecar pot.”
Redirecting employee contributions from pensions into workplace savings schemes or investment accounts can also be used for other reasons, and can be particularly beneficial to younger savers looking to get on the housing ladder, adds Stacey Lowman, head of employee wellbeing at Claro. This approach is also useful for those on higher incomes whose pension contributions are affected by the annual or lifetime allowance.
Share save schemes
For listed companies, employee share schemes are another option. The sharesave or save as you earn (SAYE) plan allows staff to save money directly from their pay package to either buy shares in an employer at a fixed price or take out savings at a certain date. “Typically these will be tied up for a minimum of three years, so it’s important that people check when these shares can be accessed and that they understand the terms of the scheme,” says Lowman.
Pensions also remain useful savings vehicles, albeit with the caveat that they cannot be accessed until the age of 55, rising to 57 in 2028. Renny Biggins, head of retirement at The Investing and Saving Alliance (TISA), says: “Salary sacrifice is particularly beneficial, as not only does an employee get tax relief at their marginal rate immediately, but also the employee and employer get a national insurance (NI) saving which can be added to the pension plan. Offering the option of any annual bonus allocation to pensions and encouraging increases at pay reviews are adopted by some employers and are useful in the absence of any mandated auto escalation.”
Yet even where such schemes exist, employees are often unaware of them, or unsure of why they should use them rather than a high street alternative. “The thing to look at to encourage take-up rate in workplace schemes is whether employers are making it easy for employees to use,” says Hunter. “We can’t blame people for not accessing systems or offerings which offer poor customer journeys and are not fully accessible.”
Employers also need to take more responsibility for educating employees on the importance of saving and remove the fear from investing, says Sahil Sethi, co-founder of Maji.io. “This can be facilitated through targeted communication campaigns and webinars that are linked to tangible actions that employees can take immediately,” he says. “It’s all about education and reducing friction.”
In the longer term, it is possible that government might have to do more to mandate organisations to offer workplace savings schemes, in much the same way as with auto-enrolment, says Biggins. “When we emerge from this crisis, we need to ensure that we have a robust savings framework in place, so people are equipped to deal with these unexpected challenges in the future,” he says. “Whether the resurgence will be voluntary remains to be seen.”