The Daily Telegraph - Saturday - Money
Pension full? Ask your boss for a ‘Wisa’
Workplace Isas allow employees to save directly from their salary – and investment costs can be halved, writes Sam Brodbeck
You may already have a pension and an Isa – but do you have a Wisa? Falling pension allowances and younger workers’ desire to get on the property ladder have led an increasing number of employers to offer workplace Isas or “Wisas” to their staff.
They work just like conventional Isas, where savings and investments grow free of capital gains and income taxes. But there are added benefits: investment charges can be much lower because employers qualify for bulk discounts, and contributions are deducted through payroll, so money is saved before it can be spent.
Figures are hard to come by, but a survey in 2015 found roughly one in 10 of Britain’s largest firms offered Isas to staff. Isa providers say the figure is now rising rapidly.
Harriet Saunders began to save into the workplace Isa offered by her employer, energy firm Ovo, soon after her 30th birthday.
“We are given the choice of spending 4pc of our salary on benefits such as cycle to work schemes, medical insurance and, since last year, Isas,” she said. “I’m trying to buy my first flat so it was a no-brainer for me. It means I know I’m saving a set amount of money each month – in my case £70 – into the Isa.”
Ms Saunders is leaving her Isa savings in cash because she may need them at short notice to fund a deposit on a property, but stocks and shares versions are also available.
Halve your fees – and give your Isa a £10,000 boost
Assuming all else is equal, the Isa should grow more quickly than it would in an Isa bought on the open market. This is because Ovo employees get a 50pc fee discount, cutting annual charges to 0.4pc.
Neil Atkinson of Thomsons Online Benefits, the consultancy that set up Ovo’s savings scheme, said the lower fees could add thousands of pounds to the final value of an Isa.
He said: “For someone who invests £300 a month over 20 years in a high-risk, high-return investment, the employer scheme discount is likely to be worth between £4,000 and £10,000, depending on investment performance.”
Normally investment choice will not be as great as that offered by online stockbrokers. Instead staff are nudged towards ready-made portfolios where investments are selected on their behalf on the basis of the level of risk they want to take. Mr Atkinson said the number of his clients offering the Isas had doubled in the past year. “They are an attractive option for employees at all stages of their career,” he said.
“High earners, for example, who may be unable to add more to their pensions pot, can divert their employer’s contributions to a workplace Isa. They’re also ideal for younger people saving for preretirement life events such as home ownership or parenthood.”
The amount you can save into a pension while still benefiting from tax relief has tumbled in recent years. Before 2006 there was no limit at all. It reached £1.8m in 2010-11 before falling to £1m in 2016. It is now pegged to inflation but is still low enough to catch thousands of middle-income workers such as nurses, police officers and firefighters.
As Telegraph Money has reported before, it is feared that further cuts to the allowance would lead to an exodus from vital public services.
Workplace Isas can give staff an incentive to keep working when there is no longer any scope to add to their pension, said Darren Laverty of Secondsight, an employee benefits firm.
Mr Laverty added that employers were beginning to take notice of the link between employees’ personal finances and their mental health. He said: “Firms are starting to look at the causes of mental health issues among their staff. It is thought that people in debt are twice as likely to develop serious depression as those not in financial difficulty.
“Employers are starting to notice that these problems are hitting their bottom line. Helping staff build up some emergency savings used to be a ‘nice to do’, now I think it’s a ‘must do’.”
Taking your money with you
Today’s workers switch jobs far more frequently than in the past. Most workplace Isa providers allow former staff to continue to contribute, via direct debit, and still benefit from any discounts.
Normal Isa rules apply. You can save £20,000 a year across the six different types of Isa. But you cannot pay into more than one cash or stocks and shares Isa in the same tax year.