Employee savings in the short medium and long term

Employers must think about the short-, medium- and long-term needs of their workforce, says Jonathan Watts-Lay, director, WEALTH at work

For some time now, people have been thinking about their personal finances with a short-, medium- and long-term view; albeit most people will look at it from a lifestyle and choice perspective e.g. saving for a holiday (short term), saving for a first home (probably medium term) and saving for retirement (long term). But as savings move more into the workplace, employers must think about what these timescales mean to employees, and what savings vehicles suit which needs, as they can form an important part of a good benefits package,  appealing to a broad range of employees at different life stages and with different saving priorities.

So what could fall into these savings categories?

  • Long term: traditionally this has been described as pensions – and now, many have flexible access to a pension pot from age 55.
  • Medium term: an equity ISA, or savings vehicles such as share incentive plans – like the pension with both of these there is an element of risk attached from day one, however both have attractive tax regimes.
  • Short term: a cash ISA, or share schemes such as Save as You Earn (SAYE), which are usually three- to five-year savings vehicles.

For companies that have share schemes, it has been relatively easy to separate their workplace savings out into these categories – but LISA, the Lifetime ISA, which comes into existence next April, may change the game.

When companies first started looking into workplace ISAs six years ago, take-up was poor as they were generally cash ISAs where there was often no real benefit for the employee above what they could get in the high street, or online. But LISA may breathe new life into the concept.

It’s not just a short-to-medium-term saving plan, but also a medium-to-long-term one as it can be used for buying a first home, as well as for retirement. So even though it isn’t available yet, many companies are considering putting one in place, because ultimately it offers great appeal  to those wanting to buy their first home as the government guarantees a 25% uplift on savings made (subject to conditions).

Even though we’re still waiting for the full details, LISA will nonetheless tick the savings box for certain demographics.

The LISA has had negative press from the pensions industry, as concerns have been raised that people will opt to save for a LISA rather than into a pension: although this view arguably has flaws – even without the LISA, many young people are saving for deposits rather than investing in a pension.

Employers, however, are taking a more positive view. The point of offering any benefits to staff is to recruit, retain and motivate staff, and the LISA is offering a way onto the property ladder, with a guaranteed 25% contribution from the government. Why would you not put this in place to try to help employees?

What do we want?
It is imperative that employers understand the needs of their staff before implementing any savings vehicles.

The key is undertaking both quantitative and qualitative research about what people want. Employees don’t know what they don’t know: there’s no point asking them if they want SAYE if they don’t know what SAYE is or how it can help them to save.

Instead, it has to be lifestyle-based research – to understand what people’s saving priorities and attitudes to risk are. The different cohorts of the employee population will differ: younger groups may want to save for a deposit, whereas for an older group that probably won't be a priority, but a good pension will be.

WEALTH at work breaks down the process of workforce analysis into three stages.

  • Primary research: asking what is needed. Segmenting the workforce and researching what they may want and need, not by product but by lifestyle.
  • Secondary research: employee behaviour. Understanding the trends in the data of the current employee population – why people are or aren’t taking advantage of certain benefits, and whether this is due to appetite, or education and understanding.
  • Final analysis: examination of the competitive landscape. Looking at what competing companies are offering that you might not be, asking why, and deciding if these benefits would be good for your employees.

On the back of this, you can then start to build out a benefits provision with the sort of communication and financial education that will appeal to each demographic in your workforce.