Help to Buy ISA could impact on pension take-up rates for younger employees

19 March 2015

The new Help to Buy ISA introduced in yesterday’s Budget offers first time buyers a welcome boost to saving for a home deposit. 

But Capita Employee Benefits has highlighted that the introduction of the Government bonus scheme for ISAs may impact on the number of younger employees remaining in their company pension scheme.

Commenting, Robin Hames, Head of Marketing and Research, said “The 25% ISA bonus equates to the tax relief available to personal contributions paid by a basic rate taxpayer employee. So from that perspective, the choice has now become neutral for many employees.”

“While the employee clearly loses out on their employer’s contribution, the immediacy of access will be attractive as will the goal of getting on the property ladder. Furthermore, given that under auto-enrolment, many employers may only be paying a 1% contribution, this sacrifice may not be seen as significant.”

“The early analysis of the results of our 2015 Employee Insight survey shows that saving for a deposit is a much higher priority for the under 35s than saving for retirement. It ranked the 2nd most popular priority after saving for a holiday; while saving for retirement trailed back in 8th. Saving for a deposit was three times as popular.”

In conclusion, Hames said, “It seems inevitable that from this autumn, Help to Buy ISAs will compete directly with pension schemes for the limited amount of savings available to younger employees in rented accommodation. It will certainly be an issue we incorporate in the financial education and awareness programmes that we run on behalf of employers.”

The latest annual Employee insight report from Capita Employee Benefits is available here.

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