First UK corporate ISA as savings alternative to company pension scheme

The homebuilder Barratt Developments has launched the UK’s first corporate Individual Savings Account (ISA) as a savings incentive for staff. The ISA will offer an accessible and attractive alternative to other forms of saving, such as paying into a company pension scheme.

Barratt’s is working with Legal & General to offer its workers an ISA with access to 10 investment funds. The ISA functions as a normal stocks and shares ISA account, which means that savers can pay in up to £10,200 per year, and enjoy tax advantaged growth on their cash. Barratt employees can save lump sum contributions of at least £200, or have regular savings deducted from their salary and paid directly into the ISA.

The initiative will offer younger workers in particular an attractive opportunity to save, but without locking their money away. By using the ISA, savers have easy access to their cash, but can build up a substantial ’nest egg’ that could form the basis of pension saving, later on.

Recent studies have identified a reluctance among younger workers to save into pension schemes, because they do not wish for their money to be ‘locked away’ until they retire. Halifax published a report which showed that the average age for starting a pension was not until 32, indicating that workers in their 20s, who may be marrying or buying their first home, prefer to keep their cash within reach, and were relatively unlikely to set up a pension as yet.

The trend was confirmed by Scottish Widows in it’s Pensions Report June 2010, which looks at all aspects of pension savings behaviour. One conclusion of the report was that the groups which tend to save well into their personal pensions and company pension scheme were married people and those in their early 40s, and that ‘young people lag behind’ in the pensions saving league. The new Barratt ISA account is certain to offer a savings structure that will appeal to the younger employee, and Legal and General claims that ‘company ISAs are set to revolutionise participation in company saving schemes’.