A recent survey conducted by Cushon, the workplace savings and investment provider, has found that while one in three employees under the age of 40 are saving to be able to buy their first home and get a foot on the property ladder, less than half of these (44.09%) are taking advantage of top up bonuses offered by the Government by saving into a Lifetime or Help to Buy ISA.
Of those saving to buy their first home, only 13.18% of these are saving into a Lifetime ISA while 30.91% are putting money into a Help to Buy ISA (the Lifetime ISA’s predecessor) and benefiting from the Government top up bonuses which help them to reach their goals sooner. But this means that there are a lot of aspiring homeowners currently missing out on this ‘free money’ of up to £1,000 a year offered with a Lifetime ISA.
The Help to Buy ISA was closed to new applicants in November 2019, but was replaced by the Lifetime ISA which offers a 25% Government top up bonus up to £1,000 per year on any savings as long as the money is used to purchase a first home or for retirement. Of those surveyed who are saving to get on to the property ladder, 31.82% are saving into an instant access account, 25.45% are saving into a fixed rate savings account. One in five (20.45%) are saving into a cash ISA and 7.73% are saving into a stocks and shares ISA. With interest rates at an all time low, the Government 25% bonus on a Lifetime ISA would help these savers get on the housing ladder a lot quicker.
Using the workplace, more education is needed to help educate individuals about the different savings initiatives available and how they can help people to reach their goals faster. Employers can support their employees to get a foot on the housing ladder by encouraging them to pay money into a Lifetime ISA directly through their pay each month. Employers can also choose to contribute – splitting any pensions contributions over and above the auto enrolment minimum rates into a Lifetime ISA account instead. Something which will appeal to and engage younger workers who are prioritising buying their first home over saving for retirement.
Steve Watson, head of proposition, Cushon, says: “Workplace savings are a really easy way to help younger employees get a foot on the housing ladder. Historically, getting millennials engaged in their pensions as a workplace benefit has been challenging. While pensions are important, many of these employees have other financial priorities to worry about before they think about saving for their long term future.“With a 25% Government bonus it is the ‘no brainer’ product for the under 40’s looking to get on the housing ladder. When you look at our research figures, there is a lot of money being left on the table; money that could really speed up the reality of home purchase for a lot of young people which is always going to help engage a younger workforce.
The Lifetime ISA (LISA) is open to anyone under the age of 40 and lets you save up to £4,000 a year towards your first home or retirement, with the Government adding a 25% bonus on top of what you save up to a maximum of £1,000 per year. The funds can be withdrawn, penalty free, to purchase a first home up to the value of £450,000 or to go towards retirement and be accessed from the age of 60.
If someone is saving for a deposit for a first home in a normal savings account, they are missing out on a massive boost. For example, if they have £4,000 saved in a savings account and they open up a LISA before the end of the tax year and transfer their cash, they will immediately get a £1k bonus. The LISA can be used for a deposit and the Government bonuses are paid straight into the LISA; you don’t have to claim them. If you pay into a LISA monthly, the bonuses are added monthly.
Cushon is a workplace savings provider using fintech to bring innovation to workplace savings.
A number of FTSE 100 companies use Cushon to enable their employees to save directly out of their pay for first homes, holidays, children’s education, retirement, and more.
Employers use Cushon’s workplace savings platform to enhance the financial wellbeing of their workforce, by providing them with a simple and convenient way to save as little as £10 per month, direct from pay.
Through the workplace, Cushon aims to help the UK get more comfortable with saving and investing, and ultimately get a more comfortable life.