Saving in the workplace

Saving is the new black. In the wake of the recent financial crisis, research* shows we are abandoning the ‘spend now pay later’ culture and taking a more prudent attitude to credit card debt. But how many of us have thought about the benefits of saving regular amounts deducted from wages through the workplace? Putting aside money before we are tempted to spend it can help in a number of ways - to have rainy day money available for short term emergencies, to save for the medium term (sunny day money) and then long term for our retirement (twilight day money).

One of the most popular ways of saving are Individual Savings Accounts (ISAs), which offer tax efficient saving for the medium to long term. The Government encourages us to save in ISAs and around 17 million people have an ISA account. You can save up to £10,200 each
year and there is no tax payable on any income received and no tax payable on capital gains.

Now this popular saving vehicle is available in the workplace as the Corporate Individual Savings Account (CISA). CISA offers employees a flexible, tax efficient method of maintaining a holding in shares from a maturing SAYE scheme or Share Incentive Plan (SIP). For employers CISA widens the choices for staff to invest shares maturing from SAYE schemes (evidence suggests that investing in shares provides a better longterm return than savings held in cash) and can be used to complement a Corporate Self Invested Personal Pension (SIPP).

As well as providing employers with more choice for their employees to participate in medium and long-term savings schemes CISA delivers a
seamless process for transfers to a Corporate SIPP.

The benefits of low cost Corporate SIPPs in revitalising employee participation in company pension schemes have become widely accepted. By linking with Corporate Individual Savings Account, employees can take full advantage of the considerable tax benefits of transferring
their SAYE savings from an ISA to a SIPP at a time of their choosing.

Employees will also be more motivated to maximise the value of benefits of combining their shares with a pension plan/ISA if they understand the tax implications of their actions and how this tax can be mitigated.

Firstly, paying a maturing SAYE scheme into a CISA can avoid Capital Gains Tax (CGT) liabilities that may arise. Secondly, rolling the SAYE into a Corporate SIPP then increases the savings further by the addition of pension tax relief. The tax benefits speak for themselves, 18% CGT saving on the Corporate ISA contribution, an additional 20%** from HMRC will be added to the pension contribution (with a further 20% reclaimable if a higher tax rate payer). The net effect would increase the amount paid into a pension pot (via
the CISA/CSIPP route) by at least a third and often a lot more!

Most employees will require education and advice if they are to understand how these benefits can be integrated. It is important that employees understand that once they transfer their ISA any pension contribution will be tied up until retirement.

Already, evidence points to the availability of these types of benefits playing an increasingly significant part in the decision of which company for new applicants and improving loyalty for existing staff.

The new generation of Corporate SIPPs and Corporate ISAs integrate employee benefits into a workplace savings approach amplifying the potential advantages to employees with little or no cost to the employer. It’s a case where everyone can be a winner.

Notes: * Research for the Legal & General Money
Mood Survey was carried out January 2009.
** Tax figures quoted for Tax Year 2009/10.