InvestmentsNov 20 2014

Whispa it loudly

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Enhancements to make Isas more flexible introduced earlier this year have served to remind us of their enormous popularity with the UK population. To date, more than £442bn is saved in cash or stocks and shares Isas.

In particular, the changes to increase the subscription limit to £15,000, permit the whole to be invested in cash and for investments to be switched at will between stocks and shares and cash are giving investors more choice, as well as encouraging more competition.

Add in the government’s decision to consult on the inclusion of peer-to-peer lending as an Isa-qualifying investment, and it is clear to see how the Isa concept is evolving to meet the needs of today’s savers.

Arguably, the next logical step is the development of a modern-day tax-efficient savings scheme in the workplace benefiting both employer and employee. Efforts have so far failed to get off the drawing board, but could that be about to change? Are we about to turn up the volume on the Wispa?

A Wispa, or workplace individual savings & protection account to give it the full title, would be particularly suited to those who are new to the workplace and could, in effect, bundle together savings for the short and long term within an Isa tax-efficient wrapper with matching contributions made by employers, critical illness cover and maybe even a prize-linked scheme.

Crucially, this form of workplace scheme would encourage young employees to save, and support the drive to move the UK away from being a debt-based to an asset-based society. A recent Lloyds Bank Family Savings Report made the point that those who start saving early in life hugely increase their chances of reaching life goals such as house ownership. Auto-enrolment will help with retirement needs, but it is not the complete answer. We need to innovate and develop complementary schemes which serve the needs of the young generation of today.

We have to find a way to meet, for example, the needs of graduates as they repay their student loans, save for a deposit on a first house purchase or make mortgage payments, and who also should be starting to build a financial pot for retirement.

If we get the incentives to save right, design the products correctly and, importantly, allow young people to engage in a way that suits them and their lifestyle, then we should be able to encourage people to contribute willingly, rather than seeing it as a punitive measure. In short, if we get it right, every young person will want a Wispa.

So what could make up the ingredients of a Wispa? There would be three simple products, all of which are available today. At its heart would be a form of workplace stocks and shares Isa into which savers could invest to build up a sum to meet a rainy day, or emergency financial need, a deposit on their first property purchase, or perhaps to clear the last of a debt – a student loan balance, for example.

People might also just want to make some speculative growth investments within an Isa wrapper. Whatever the reason, the key is that access to the funds should be straightforward and easy, just like a normal Isa.

Alongside this, the employer would match the individuals’ contributions, but this time putting the funds into a stakeholder pension scheme as part of a flexible-benefits package, all fully transferable. The matching could be up to a limit the employer felt they could afford within a benefits arrangement, that is, within the costs of employment that they saw as being appropriate to attract and retain the talent needed in their business and to comply with their auto-enrolment requirements. This could be as an alternative to Nest. Access to this element would be restricted as it would be designed to meet longer-term needs.

Providing protection, particularly for the dependants of a young breadwinner, is also essential, and the Wispa could also include life and/or critical illness cover. This would usually be a multiple of annual salary and again form part of a flexible-benefits package.

Finally, in addition to these three simple products, as an added incentive, contributions could also be made towards a prize-linked award scheme. Perhaps on a similar basis to the premium bond scheme where contributions can be easily withdrawn, and prizes are paid free of tax directly into the Wispa. This would help to encourage the regular saving and investing habit by introducing some fun from the chance of winning a prize.

All of this could work based on existing legislation and regulation without the need for further changes; delivery would be through the workplace platforms that a number of product providers are already offering to larger-size employers, or indeed by new and innovative entrants to the platform market through Apps on smartphones and tablets. If we are to engage effectively with young people we must make a Wispa easily accessible, utilising the latest technology and using a language that can be related to.

The plan would be for young employees to begin by saving small amounts, taking into account the means available to them, and then, over time, to gradually increase the savings element as their salary increases. A clear and simple message, such as “a fiver-a-day helps you work, retire and play”, would help to illustrate the sort of amounts that should be saved each month to start with. Automatic annual increases, perhaps linked to a pay rise, could also be offered on an optional basis.

A key aspect of any workplace savings scheme is that it should be easy to save directly from salary. However, in order to ensure commitment there also needs to be an element of education, and an improvement in financial literacy, combined with access to guidance. A generational change has started in this respect with the inclusion of financial literacy in the national curriculum for schools and colleges. There is also the first cohort of 800,000 11 to 12-year-olds who all have Child Trust Funds and who started senior school in September this year. This presents us with a great opportunity to re-establish the benefits of a life-long savings habit and move the UK towards a sustainable culture of personal financial responsibility.

What might have started as a Wispa could yet turn into a shout.

Clive Shelton is deputy chairman of Tax Incentivised Savings Association

Key points

A Wispa would be particularly suited to those who are new to the workplace and could, in effect, bundle together savings for the short and long-term within an Isa tax-efficient wrapper.

If we get the incentives to save right, and allow young people to engage in a way that suits them, then we should be able to encourage people to contribute willingly.

The employer would match the individuals’ contributions, but this time by putting the funds into a stakeholder pension scheme as part of a flexible-benefits package.