Q&A: all you need to know about workplace ISAs

Our latest financial wellness survey found that 25 per cent of people admit to money problems so substantial they affect their ability to do their job, with the same proportion believing they have little or no chance of saving adequately for their future. Yet despite 88 per cent of employees being open to using financial education and products delivered via their employer, only six per cent of employers provide debt consolidation via workplace lending and counselling services as part of their benefits schemes.

So what can employers do to help? Last week I ran a Thomsons’ Twitter Q&A in association with Smarterly, answering any and all questions our followers had about workplace ISAs. Read on to find out all you need to know about implementing workplace ISAs for your people.

What is an ISA?

In short, an ISA is a tax-efficient way of investing money. Unlike most other sorts of investment, you don't have to pay any tax on investment income or capital gains from an ISA.

What types of ISA are available?

Cash ISA, stock and shares (S&S) ISA, junior ISA, lifetime ISA, and the innovative finance ISA. Workplace S&S ISAs are most prevalent.

How do workplace ISAs fit into financial wellness strategies?

Many clients use ISAs as part of a wider financial wellness strategy. A savings buffer builds financial resilience for lower earners and provides tax-efficient savings for high earners. It’s a great multi-purpose product for workplaces with employees of all demographics.

Why is the workplace a good channel rather than just via a high street bank?

Employers often undertake thorough selection processes before opening up an ISA provider to their people. High street savers may end up with a mediocre product sold to them by a bank. In addition, saving through pay helps employers promote better savings habits and encourages monthly budgeting.

Is it right to offer products which offer equity-based savings while markets are volatile?

Communications to your employees are vital to help savers make decisions about where to invest their money based on transparent risk. Providers often offer best or worst case scenario models to help people understand the risk and the reward over time. Regular contributions also help to balance market volatility.

How can you encourage employees to get into good savings habits?

An often overlooked benefit of workplace ISAs is as a solution to savings inertia! Get your people into good saving habits and they’re unlikely to stop (a bit like pension auto-enrolment). A prize draw or some simple communication on why it’s good to save for life events can help maximise benefit take-up. We’ve seen uptake of more than 10 per cent!

Can you link ISAs and pensions?

Both are quite simply savings accounts with different tax wrappers. This is important for employees to be aware of. Pension redirection is a good way to allow employees to meet their auto-enrolment obligations while allowing their people more flexibility in how they save.

What if my people already have an ISA via their bank?

If they are interested, you can transfer them online to the workplace provider. Cash to stock and shares, or like to like. This doesn’t impact current year ISA allowance either. That only applies to new saving flows so it’s a win-win.

How can I optimise uptake of a workplace ISA?

‘Baking in’ ISA benefits to flex allowances, pension contribution rules and making it the default solution for high earners will all boost uptake and promote good financial behaviour. Also, don’t underestimate the power of a good communications strategy.

What return on investment is there for introducing a workplace ISA?

Lost productivity, increased absence and high employee turnover are all associated with ﬁnancial stress and costs UK employers around £120.7 billion each year, according to Neyber’s the DNA of Financial Wellbeing (2018) report. Helping your employees build healthy savings habits directly contributes to their personal wellbeing.

If there was anything I didn’t get to answer here, check out the rest of the questions in the #AskNeil thread on our Thomsons Twitter @ThomsonsOnline, or tweet me @Neil_Thomsons.

The author is Neil Atkinson, head of proposition, consulting at Thomsons Online Benefits. Written in association with Smarterly.

This article was provided by Thomsons Online Benefits.