Building a business case for the Lifetime ISA
Increasingly, employers are seeing the benefits of helping staff get on top of their finances, whether that’s making sure they can afford to retire, decreasing stress, or simply wanting to do the right thing.
This is particularly true when it comes to pensions. For most people, workplace savings play a huge role in saving for later life. In fact, except for those who can get by on the state pension alone, employer pension provision forms the bedrock of a healthy retirement.
And businesses that don’t help their workforce save for the longer-term are likely to face trouble down the line. After all, no one wants employees who want to stop working, but can’t afford to.
The problem with pensions saving
Since the introduction of auto-enrolment, most people are saving something for retirement. However, we all know that current contribution rates are insufficient.
The average person needs to save £260,000 to enjoy a basic income in retirement. This climbs to £445,000 for non-homeowners. And recent figures from the Institute for Fiscal Studies suggest that just 27% of 25-34-year olds are currently property owners (down from 65% 20 years ago).
Clearly – young people need to save more if they want to retire.
But given the myriad financial pressures facing millennials, there are concerns that as contribution rates rise, more people might start to opt out. Hardly surprising, with the cost of living on the increase and rents rising astronomically.
So, by trying to increase traditional pensions saving, we may leave younger savers even worse off.
Thinking outside the box
These conflicting pressures have left smart employers considering how to reshape their financial wellbeing strategies, in a way that both promotes longer life saving and helps young employees manage more immediate pressures.
On option, is to consider a Lifetime Individual Savings Accounts (LISA).
Introduced in April 2017, LISAs can be opened by anyone under the age of 40. Like traditional ISAs, savings can be withdrawn tax-free, but employees will also receive a government top up of 25% on everything they put away up to £4,000 a year.
The money can only be used for a first-time house purchase (up to £450,000) or as a retirement fund, which can be accessed from age 60.
Anyone who opens one can keep saving and receiving the government boost up until the age of 50, so an employee who starts saving aged 18 - will get £32,000 in government top ups, on top of any investment returns.
Clearly, for young people who’re most worried about property ownership, it’s an attractive proposition.
A great workplace benefit
The majority of LISAs are purchased in the retail market, but there are clear advantages to offering them in the workplace.
Not only are they popular among employees, particularly the young, allowing staff to contribute directly from net pay makes the savings process easy. And the government top up, alongside investment returns, means people will quickly see their savings grow.
Additionally, by offering a product that’s geared towards saving for a home, you can engage young people, get them into the savings habit, and then allow them to continue saving for retirement later on. This helps overcome the increasingly tricky problem of making sure staff can stop working when they want to.
And because businesses have greater purchasing power, you can offer LISAs to employees for lower investment costs than they’d pay on the high street.
Taking all that together, if a LISA is delivered alongside a strong financial education programme, it’s easy to see the path towards a happier and more economically stable workforce.
Happier workers means better business results
Helping employees on the journey to financial wellness also leads to better commercial results for the employer. For instance, stress over money means lower worker productivity and more absenteeism. Helping employees manage their moneys helps lessen these risks, and thus reduces the associated business costs. It can also promote better work life balance for employees and leads to improved staff retention.
Author is Ben Hollingdale, head of sales at Smarterly.
This article was provided by Smarterly.
In partnership with Cushon
Cushon is an online savings&investments platform provider, offering holistic workplace savings.
