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Article | Pensions Briefing

Helping employees save for today’s challenges whilst preparing for tomorrow’s

Pension Board and Trustee Consulting|Pensions Corporate Consulting|Pensions Risk Solutions|Pensions Technology
COVID 19 Coronavirus

By Simon Hankin | December 8, 2020

As 2021 beckons, employees of all ages, salaries and financial wellness have a common demand: a pension-linked ISA that incentivises wider savings via the DC contribution structure.

Unless you’re aged 50+, it’s likely that saving for retirement is near the bottom of your problems list. In the jungle of life, there are more immediate wellbeing threats; that unexpected bill, a furloughed partner, or a deposit on a new home. Retirement, on the other hand, is a plodding beast that you hope to outrun as it gets within striking distance. Survive today and worry about tomorrow when tomorrow comes.

Such challenges, despite what some may expect, are not unique to lower paid, younger employees. Indeed, Willis Towers Watson employee surveys indicate that the number one ‘want’ for employees of any income level or age is the ability to save direct from pay. Everyone has different challenges, but the common denominator is a demand for employer-led savings.

Increasingly, employers are waking-up to this demand. Moreover, by enabling defined contribution (DC) members to divert a portion of pension contributions to an Individual Savings Account (readily available from most pension providers, unlike a Lifetime ISA), employees can deal with today’s challenges whilst preparing for tomorrow’s. For example, one of our clients has recently given employees a binary choice - either diverting matched contributions (over and above an auto enrolment compliant core tier) to their pension pot, or to an ISA managed by the pension provider. If the latter, jungle-ready employees can see both sets of savings on their smartphones.

So, how common is this type of arrangement? Historically, alternative arrangements were often only in place for individuals caught by the  Annual Allowance (although cash is king for such individuals, with allowances often going direct to pay rather than a savings plan). Whilst it is vital to keep policies for that cohort under continual review – for example to reflect the most recent changes that took effect in April 2020 to ensure those employees can continue to save tax-effectively into a pension scheme – increasingly we are seeing alternative savings strategies being opened up to the entire workforce. As you can see from the graphic below from our 2020 FTSE 350 DC survey, a not-insignificant 8% of FTSE 350 companies now do just that.

This picture was also from a pre-COVID world and we are now seeing much further interest in financial wellbeing of employees in a post-COVID world. For example, a UK COVID benefits survey we produced in May shows that 60% of employers are looking to enhance employee wellbeing through benefit improvements.

Moreover, following recent Government talk of consolidation for schemes with less than £100m in assets, we expect a further push towards master trusts. Many master trusts already offer ready access to ISAs and so if consolidation does start to snowball, it naturally opens up opportunities that can cater for demands for wider, alternative workplace savings.

However, we cannot ignore that even with access to a broader range of savings options, the ‘here and now’ is also important. Many pension schemes have been bracing themselves for a significant jump in requests from savers to cash in their retirement benefits to help them through the COVID-19 crisis, although there is no immediate evidence of that being a widespread problem. Of much greater concern though is that there is also now estimated to be £2.5tn of pension wealth at risk to scammers because the individuals can access their benefits.

Communication and engagement is therefore vital. The financial needs and wellbeing of a multi-generational workforce present a real opportunity to take a holistic view of savings and put foundations in place that can cater for all employees regardless of their earnings and savings capacity. With a bit of creativity, the reward could be well informed, happier employees and happier employees ultimately means more productive employees.

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Simon Hankin
Director, Retirement

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