Today’s workplace savings environment includes some disgruntled employers, a defensive pensions industry and an under-saving population deterred from engaging with an industry that is widely distrusted. What simple elixir would satisfy all parties?
In a new report The Workplace ISA, published by the Centre for Policy Studies on Friday 22 April, Michael Johnson urges the government to introduce a Workplace ISA to complement the recently announced Lifetime ISA. Auto-enrolment’s reach should then be expanded, and both the Lifetime and Workplace ISAs included within its legislative embrace.
Michael suggests that a Workplace ISA would be a powerful tool to discourage opt-outs, thereby enhancing employee engagement with saving.
The key features of the Workplace ISA:
- The Workplace ISA should be included in the auto-enrolment (AE) legislation. This is fundamental: employers are integral to auto-enrolment’s success. It should be open to all auto-enrolled employees under the age of 40.
- Employer contributions, taxed at the employee’s marginal rate, may be paid into a Workplace ISA until the age of 50 (as per the Lifetime ISA). They should be accompanied by the same 25% Treasury bonus as that intended for the Lifetime ISA.
- Withdrawals from the Workplace ISA should not be permitted until the age of 60; thereafter, they would be tax-free.
- Auto-enrolled employee contributions, made with post-tax income, may be paid directly into the employee’s Lifetime ISA. They would be subject to the same tax, withdrawal and penalty rules as other Lifetime ISA savings. They should also be eligible for the Treasury’s 25% bonus.
- Employer and employee contributions should share an annual contributions cap of £10,000, subject to Treasury cost modelling.
- The Workplace ISA could be housed within the Lifetime ISA, leaving the individual with a single retirement savings vehicle.
- Workplace ISA assets should enjoy the same Inheritance Tax treatment as today’s pension pots and should be excluded for means testing purposes, as per today’s pension assets.
Michael Johnson comments:
“The Lifetime and Workplace ISAs, operating together within the auto-enrolment framework, would help many people of modest means achieve a goal that was originally proposed in a 2012 paper aimed at catalysing the broad-based savings culture that the UK so desperately needs. The majority of the population should be encouraged to set themselves one simple goal at the point of retirement: to be a debt-free home owner (including no consumer debt). Thereafter, they could perhaps downsize to top-up their retirement income, and perhaps finance long-term care.
Ideally, the Workplace ISA will be announced in the 2016 Autumn Statement, after a summer spent assessing the public’s response to the Lifetime ISA, perhaps for 2018 implementation. It would, of course, compete with today’s occupational pensions savings schemes.”
- FT Adviser: Workplace Isa proposals revealed
- The Mirror: Why we need a new ISA – the plan to get Britain saving
- Belfast Telegraph: Workplace Isa ‘needed to boost savings culture’
- New Model Adviser: Influential pension expert calls for workplace ISA
- Professional Pensions: The earlier you get a wake-up pack the better says industry
- BT News: Workplace Isa ‘needed to boost savings culture’