Workplace ISAs get employees back in the habit of saving
More companies are offering schemes that take contributions directly from post-tax pay packets. Julian Knight reports that it seems to be working
Sunday 13 February 2011
For millions of Britons, an individual savings account (ISA) is a no-brainer.
Once your money is invested, any interest paid or performance growth accrued is tax free. What's more, a new ISA can be taken out every tax year meaning that it doesn't take that long to build up a sizeable tax-free pot of cash and shares which can be used by the saver at any time.
However, despite their undoubted success ISAs still aren't taken up by a sizeable chunk of people who could afford to do so. In surveys, these ISA refuseniks often cite time and lack of convenience as key reasons. Now, though, some of the UK's largest employers will start offering ISAs in the workplace to staff, with contributions deducted straight from post-tax pay packet – at a stroke making it easier for Britons to get into the ISA saving habit.
American fund management group Fidelity said last week that it would start offering workplace ISAs to hundreds of UK firms which currently use it to manage their company pension scheme. "The beauty for employers is that these schemes are easy to administer. All they have to remember to do is deduct the contribution from post-tax pay and it adds to the list of benefits they can offer their staff," said Julian Webb, the head of defined-contribution business at Fidelity. "We hope to have a couple of big-name firms signed up by the April tax deadline and are in negotiation with firms with thousands of employees."
The emergence of workplace ISAs came as a report from accountancy firm UHY Hacker Young showed that the traditional vehicle for workers to put away cash – employee share incentive schemes – is withering. "The administrative cost of share schemes has risen, and with a lot of employers funding schemes out of their own pockets many have been persuaded to reassess whether they want to provide this kind of benefit," Roy Maugham, a tax partner at UHY Hacker Young said. As a result, the number of companies running share schemes open to all staff has declined by 10 per cent over the past two years.
But it seems it's not just employees who no longer have access to a share incentive scheme who are being targeted for a workplace ISA.
"At one end of the scale, we have firms looking to help high earners who could be caught out by the new £50,000 annual limit on pension contributions. At the other are companies with a younger workforce who are not engaged by pensions, don't like the lack of flexibility, but the way ISAs work is much more appealing to younger staff members," Mr Webb said.
Fidelity is not the only firm in the field. Hargreaves Lansdown has been offering workplace ISAs for several months, and reports that one in five employees who was saving in a pension has started to contribute to a workplace ISA as well. "If our result were replicated across the economy, it would be a huge fillip to workplace savings," Danny Cox from Hargreaves Lansdown said. "Savings to ISAs through payroll are a very convenient way to save. They also follow the mantra of 'pay yourself first'. Your money for your ISA leaves your net pay before any bills. This helps avoid the situation where savings fall by the wayside as the salary is already spent before the month or week ends."
Fidelity's and Hargreaves Lansdown's schemes are based around offering access to hundreds of investment funds rather than the safe option of cash savings accounts. Savers pick the funds they would like to invest in rather than have them recommended by an independent financial adviser – although some firms may offer advice as part of their employee benefit package. There are advantages and disadvantages to a go-it-alone approach.
A major advantage is low cost. Fidelity's and Hargreaves' schemes offer a heavily discounted initial charge on their workplace ISA. "Our funds Network Service has an average initial charge on fund investment of 1.25 per cent, but if you buy the same fund through a workplace ISA you can expect to pay no initial fee at all. On the maximum ISA investment of £10,100 a year, that is a saving of £127 on average from the normal level of fees," Mr Webb said.
However, an investment in the stock market is risky. "The FTSE is still lower than it was in 2000 so you have to be aware of the downside," said Darius McDermott, managing director of Chelsea Financial Services. "But now it's much easier to self-select the fund you want to invest in.
"Be aware, though, of some basic points about investment. Take into account your age and your attitude to risk. If you are in your fifties and don't like risk, then don't put your workplace ISA into an emerging markets fund. Whatever the scenario, remember as you approach retirement to reduce the risk in your portfolio."
Darius McDermott, Chelsea Financial Services
"Workplace ISAs are a welcome way of boosting the level of savings in this country. Their great appeal is convenience with contributions made directly from salary. But remember, stock market saving isn't for everyone. Ensure you have a savings cushion in place to take care of emergencies first or are in the process of building one up before taking the plunge."
Five Questions On: Mortgage affordability
Is 31 May really the day when we have paid all of our tax for the year?
Women born in 1950s facing severe financial hardship over pensions could have fates changed by Ros Altmann - should she choose to help
Five Questions On: GB Energy's new tariff
Defined-benefit pension schemes: Rebate change in 2016 may leave you out of pocket
- 1 Man on naked bike ride gets ejected after becoming aroused
- 2 Charles Kennedy dead: Former Lib Dem leader dies at home aged 55 - latest news
- 3 Ayyan Ali: Pakistan's top model now appears in the courtroom rather than on the catwalk
- 4 Fifa corruption: Europe plots to stage an 'alternative World Cup' in place of Russia 2018
- 5 Jaden Smith wears gender fluid dress to high school prom with Hunger Games actress
Migrants in Kos: Photos show real tragedy after Brits abroad complain of 'awkward' holidays
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination
British tourists complain that impoverished boat migrants are making holidays 'awkward' in Kos
Michael Gove determined to scrap the Human Rights Act – even if Scotland retains it
Threat to scrap Human Rights Act could see UK follow Nazi example, warns UN official
Why this year's general election was the most unfair in Britain's history
iJobs Money & Business
£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...
£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...
£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...
£25 - £30K: Guru Careers: We are seeking a highly-motivated and ambitious Comm...
Day In a Page
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool