Fair Investment Company is calling on the government to move quickly on improving workplace savings models, following the response to the early access to pension savings call for evidence.
Having rowed-back from allowing early access to pension pots in favour of developing ‘innovative workplace savings models that will encourage saving for both medium term needs and for additional retirement income’1 the government should exploit the potential in corporate ISAs.
Responding to the early access to pension savings consultation, the Treasury said: “The government is keen to further explore the potential role of feeder funds and other workplace savings vehicles”, to encourage earlier and more consistent saving.
Fair Investment Company associate director and head of pensions and investments, Oliver Roylance-Smith said: “Corporate ISAs have begun to be used by firms to provide savings options that can take advantage of lower costs and contributions taken directly from pay.
“Alongside the auto-enrolment plans for pensions saving2, creating workplace ISAs with a national insurance contribution relief for staff and employers, similar to pensions, would create a valuable incentive to introduce schemes and for people to save while they work.”
Companies, particularly smaller and medium sized firms, will need a credible incentive to introduce workplace savings for staff. A national insurance based incentive could provide this.
The automatic nature of payroll savings, as well as any fixed term requirements or withdrawal restrictions, could provide a significant boost to efforts to increase savings rates over the medium term and for retirement.
Oliver Roylance-Smith added: “The consultation on early access to pension savings showed support for the feeder fund model, which has the advantage of linking medium term savings to pension savings, so any reform of workplace saving products could look at simplifying how people can manage their ‘liquid’ savings and pension investments.
“I’m sure this will be a key area for the Workplace Retirement Income Commission3 as it considers how to improve retirement income provision. The right incentives and straight forward options linking workplace savings and pensions could help make planning for retirement accessible to the large percentage of the country facing a dramatic drop in income in their retirement years.”
1 HM Treasury 19.4.11 Press notice: Government publishes response to its call for evidence on early access to pension savings
2 From 2012 some employers will be required to automatically enrol certain staff in a work place pension scheme or the National Employment Savings Trust (NEST). Employees will have to opt out of schemes if they do not wish to contribute
3 The Workplace Retirement Income Commission (WRIC) closed its call for evidence on 26 April 2011, and is due to report on how the UK can change its approach to saving for retirement in October 2011. On launching the commission, John McFall said half of the UK workforce was on a ‘collision course with a long retirement spent in poverty’.
© Fair Investment Company Ltd