When a pension alone won't do - how workplace savings help financial resilience

Having access to lifetime-focused benefits can encourage employees to engage with short and medium-term finances.

Traditional pensions alone are no longer fit for purpose. There is an increasing demand for a holistic, lifetime-focused benefits package. Because building financial resilience isn’t just about the long term.

We’re asking employees to think about retirement, which could be 30 or 40 years away for some, when they’re likely to be distracted by more immediate financial pressures and shifting priorities.

So how can we expect them to listen to the important pension narrative? The psychological distance between now and retirement is too large for many to even consider.

This is where workplace savings can help. Employees tend to trust their employer to provide financial guidance, so having access to a lifetime-focused benefits package means they’re more likely to engage with their short and medium-term finances than if they were left to their own devices.

They’re then better prepared to think about their longer-term needs. And being able to save and invest through the workplace could have a powerful impact on mental health and productivity, as well as attracting and retaining talent.

So which accounts can help employees build a financially resilient future?

Saving cash for a strong foundation

Only 52% of households have enough emergency savings, which shows a real weak spot in the financial resilience of the nation. Having cash savings is one of the key building blocks of financial resilience, and a starting point for many.

Offering employees access to cash savings accounts as part of a benefits package gets them started with the basics, and builds the foundation for them to then think about other financial needs.

Money for the medium-term

Individual Savings Accounts (ISAs) are a way for people to save and invest in an account more easily accessible than a pension (which can’t usually be accessed until 55, or 57 from 2028).

And with ISAs being free from UK income tax and capital gains tax, there’s an added benefit.

This is particularly valuable for higher earners who have a smaller savings allowance, and pay a higher rate on the excess. With both cash and stocks & shares ISAs on the market, employees can use them to save or invest for whatever is important to them, with the comfort of knowing they can access their money fairly quickly.

General investment accounts can also be attractive to employees, particularly if they’ve maxed out their ISA allowance but still want to grow their extra cash. But they should remember that unlike cash, investments can fall as well as rise in value, so they could get back less than they invest.

Getting on the property ladder

An important milestone for many employees is buying their first home, but it can often prove a challenge.

That’s where a Lifetime ISA can help. They come with the attractive feature of a 25% bonus from the government every time you pay in (up to a maximum bonus of £1,000 each tax year). You have to be aged 18-39 to open it, and to use it for a first-time home purchase you need to be buying with a mortgage, with the home worth no more than £450,000.

It means those eligible have an incentive to save and invest, and can benefit from an often well needed boost that the bonus provides. And because it’s an ISA, any growth is also free from UK tax.

You can pay in a maximum of £4,000 per tax year, and people should be aware that unless you’re withdrawing for the eligible first time home purchase or are aged over 60, there is a 25% charge on any withdrawals, so they could get back less than they put in.

Having access to an account that’s suited to a goal so many people want to achieve is key in engaging them with their finances.

A nest egg for the kids

So many employees will have children in their working life. And with that often comes the desire to save for their future. A Junior ISA offers people the opportunity to save into an account designated for their child, free from UK income and capital gains tax.

Even though a parent or legal guardian has to manage the account, anyone can pay in. So grandparents, aunties and uncles and even family friends can contribute. As soon as the money is paid in, it belongs to the child (so can’t be withdrawn again), and is available to them to manage when they turn 18.

This account speaks to a stage of life that is shared by so many people, so employees are likely to take notice if it’s offered to them through their benefits provider.

Benefit of payroll savings

Payroll enabled savings and investment vehicles are being used more often by employers. There are a number of workplace saving schemes on the market, but some commonly offered are: ISAs, Save As You Earn, or Share Incentive Plans.

Payroll savings make it easier for people to save their salary before they’ve had a chance to spend it. Money comes straight into employees’ nominated accounts via payroll, removing the manual effort needed each paycheque.

This ‘set it and forget it’ approach means people are more likely to form lasting habits, which will provide a boost to their savings and in turn, financial resilience.

Time to think beyond pensions

It's clear that considering a benefits provider who offers more than just a pension is becoming increasingly more important. Employers need to think carefully about their benefit design to help employees build their wider financial resilience. We want people to build their financial resilience and have enough money to retire. It’s no longer just about the pension.

If you’re unsure of a course of action for you or your employees’ circumstances, please seek advice. Tax rules can change and benefits depend on personal circumstances.