When you take into account employer contributions, pensions are the most valuable retirement savings vehicles for employees. But workforce demographics are changing. With 75% of the workforce estimated to be made up of millennials by 2025 (1) and people working later into life, there’s a growing call for a more 'needs-based' approach to employer sponsored savings that’s not just focused on pensions.
Well on one hand you have higher earners who, with the introduction of the tapered annual allowance, are restricted in terms of the amount they can contribute to a pension.
Then we have the millennials who are thinking more about their first house purchase than retirement; pensions offer great value, but they don’t help with the more pressing ‘here and now’ financial concerns. A healthy pension pot that doesn’t allow access until age 55 isn’t going to help with the purchase of a first home!
In his latest article Michael Johnson, Research Fellow at the Centre for Policy Studies and adviser to Smarterly, argues that Lifetime ISAs (LISAs) are a much better value proposition for millennials than pensions.
There’s no reason why employers can’t split their contributions between pensions and LISA’s (or another type of ISA for that matter) to create a proposition that is far more engaging, needs-driven and better value than pensions alone. In fact, there are a number of employers who have introduced a dual approach with great success.
When you recognise the needs of a diverse workforce, you’re automatically forced to start thinking about ‘Workplace Savings’ rather than just pensions; a simple change in words but a powerful change in philosophy. In adopting this new definition, you automatically open up to the reality that there are other long-term savings vehicles like LISAs that coupled with pensions offer greater value to growing groups of employees such as high earners and millennials.
Michael along with other industry parties is calling on the Government to recognise a LISA as an alternative auto enrolment vehicle. Until this happens, a dual product approach is a better solution!
You can read Michael's full article here.
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(1) Forbes What The Ideal Workplace Of The Future Looks Like, According To Millennials, 2017