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• A corporate Isa may not be as competitive as the high-street version, but offering it through a workplace portal and a payroll-deduction scheme makes it attractive for employees.
• The ability of a corporate benefits platform to put an Isa into the context of overall retirement saving could outweigh a modest premium in cost.
• Corporate Isas can also be offered as part of a reward and remuneration package, and combined with pension plans and share schemes.
• Employers must shop around providers to get the best deal.
• In April, the annual Isa allowance increased from £10,200 to £10,680.
Case study: Allstate Northern Ireland staff sign up to save with corporate Isa
Technology and business services firm Allstate Northern Ireland has launched a corporate Isa with payroll deductions for its 1,900 employees.
The WorkSave Isa, provided by Legal and General, was introduced at the end of November 2010 to tie in with Allstate’s annual bonus scheme in December. Managing director Bro McFerran thought starting the scheme then would encourage staff to pay their bonus into a tax-efficient Isa. The response so far has been positive, he says.
“It is encouraging to see that a number of employees have already signed up with monthly contributions ranging from £50 to £250 despite launching it in the middle of the tax year, †which is traditionally a slow period for Isa investments,” he adds.
The organisation expects another surge in demand as the tax year ends, following the introduction of the higher Isa allowance in April.
Corporate Isas are an attractive way to get staff to put aside tax-efficient savings for their future, says Georgina Fuller
Corporate individual savings accounts (Isas) are a big talking point in the benefits industry. In the retail market, an Isa has long been seen as a sound investment for savers and, despite the uncertainties of the financial market, cash Isas are still the most popular product, according to the 6th Annual TD Waterhouse Investor Confidence Index, published in March 2011.
This April’s rise in the annual Isa allowance, from £10,200 to £10,680, may be an added incentive for staff to squirrel away more savings. Savers can now pay an extra £480 a year into their Isa. Half of the total amount £5,340 can go into a cash Isa, up from £5,100 last year.
Isas provide an entry-level introduction to savers who may not have the means or the confidence to pay into a pension scheme. A corporate Isa offers similar benefits to its high-street equivalent, but there are key differences.
One of the most significant is that payments can usually be deducted from an employee’s salary and remitted to the provider. A corporate Isa can also be combined with other benefits schemes, such as pensions and sharesave schemes, and offered as part of an overall benefits package. Corporate Isas can also be included on corporate wrap platforms.
Having Isa contributions taken out of their pay can be an enticing prospect for staff, says Dan Hawkins, corporate platform product manager at Friends Provident. “The beauty of a corporate Isa is that payment can be deducted from pay packets,” he explains. “Even the most reluctant saver is inclined to save if payment is made to the Isa before they get a chance to spend it.”
Wide appeal among employees
Corporate Isas can also appeal to a broad range of employees, including recent graduates, high earners and retirees. An employer that offers a corporate Isa with additional contributions could be particularly attractive to younger workers, says Nicky Benstead, a consultant at Towers Watson. “An employer that contributes to an employee’s Isa shows it is willing to support them in dealing with their financial priorities and this can be highly valued by some groups of staff, including graduates paying off student debt or younger staff saving to get on the property ladder or for their children’s education. This support can help attract and retain staff in this demographic.”
Corporate Isas could also be part of an overall reward and remuneration scheme, either as a potential feeder account to a pension where employees can build up a tax-efficient nest egg then choose to ‘claim’ tax relief on their accrued savings later, or as part of a share plan maturity solution.
Benstead says: “When a sharesave scheme matures, employees can transfer the proceeds free of capital gains tax into an Isa within 90 days of maturity. Isas are also being offered alongside a self-invested personal pension plan because the proceeds from the Isa can be used to fund contributions to a pension, attracting further tax relief.”
Tony Filbin, managing director of workplace savings at Legal and General, says legislative changes to high-earners’ pensions tax have also made corporate Isas more attractive. “With the lower £50,000 annual limit on pension contributions, higher earners will see the appeal of Isas once pension contributions are maxed out,” he says.
Competitive rate is essential
But employers must ensure they offer staff a competitive market rate and keep up to date with high-street deals. Ian Porter, head of wealth management at Alexander Forbes Wealth Management, says it is vital to shop around.
“Employers can research the market directly or through a corporate adviser. They need to set clear criteria of what is important maybe technological interfaces with their own benefits platform, service level agreements, availability of fund research and task their research team to find as close a match as possible to these requirements.”
Employers should also be able to negotiate competitive charges with providers and have access to core fund ranges that offer a simplified enrolment process as well as information tools to help staff gauge risks. “Ideally, a corporate Isa would be on terms that are at least as good as the employee could get on the high street as an individual,” says Benstead. “The employer should be able to use its collective buying power to obtain competitive terms from the Isa provider.”
The costs involved will be of great interest to employers. Filbin says: “There is a set-up administration fee on the first subscription of 0.5% with a minimum of £10 plus VAT and a maximum of £150 plus VAT. If investing in a stocks and shares Isa, there will be additional fund charges from as low as 0.25%, depending on the fund chosen.”
If an employer chooses to match or offer additional contributions to a corporate Isa, the costs can stack up considerably. This may be an effective retention perk, but it could cause headaches for the employer. Filbin says: “The decision to offer an [employer] contribution is something many employers are considering. However, the need to introduce a raft of pension and tax reforms, with many deadlines on or before 2012, plus the likelihood of further tax reforms, means it is unlikely any employer would go down this route at the present time.”
Instead, Filbin expects corporate Isas to remain a voluntary savings scheme for the foreseeable future.
Employers should also bear in mind that employer contributions to an Isa are, in effect, no more tax-efficient than paying additional salary. Benstead adds: “Also, there is nothing to stop the employee taking the employer’s contribution straight out of the Isa and spending it, which runs contrary to the idea of providing a savings vehicle.”
Once they have a good corporate Isa up and running, employers must also keep an eye on the financial market to avoid staff looking elsewhere. Benstead concludes: “The key is good ongoing governance so the provider and funds are reviewed regularly to make sure they remain competitive.”
What is a corporate Isa?
• There are two main types of corporate Isa: a stocks and shares Isa, which invests in collective funds, and a cash Isa.
• Stocks and shares Isas are more commonly offered by providers.
• Some providers offer corporate Isas as part of a corporate wrap platform.
Read more articles on corporate savings accounts