With high inflation and an increasingly tight labour market, employers face stiff competition to attract talent. They are having to go the extra mile to appeal to candidates, including through improved pay and benefits, as well as showcasing the professional culture and development they can offer.
One benefit where some employers go above and beyond is their investment in pension contributions. However, they may be missing an even better opportunity to boost their employees’ financial and mental wellbeing: by helping them get on the property ladder.
Under the auto-enrolment system introduced in 2012, employers must make pension contributions worth at least 3% of an employee’s salary, while the employee pays in a minimum of 5%. Many employers pay more than this, particularly as their employees age, with contributions by both rising progressively towards retirement age.
Public sector professionals benefit from some of the most generous pension contributions. According to Pension Times, teachers, NHS staff, police officers and firefighters are among the top ten jobs with the best-paying pensions. Teachers pay in between 7.9% and 11.7% with their employers contributing an additional 16.48%. Meanwhile in the private sector, financial services firms contribute an average of 9.5%, well above their 3% obligation.
While higher pension contributions are no doubt welcome, this investment may be something of a wasted opportunity for those who are struggling to find their feet financially, especially those at the beginning of their careers. When young people enter the workforce, they face an uphill battle to stabilise their finances. Many have significant student debt and the lowest salaries they are likely ever to earn. The same is true of any assets or investments they have.
It can seem that the odds are against them with so much investment of money, time and effort required in the hope that it will pay off in the future; with their education, unpaid labour (for instance, internships and volunteering), and once they do start working, pension contributions they cannot access until the age of 55.
Many people entering the workforce are the poorest they will ever be and will likely share accommodation with several others in similar circumstances. Rather than increased pension contributions that will not benefit them for decades, they could be helped enormously by being able to get on to the property ladder sooner.
A far more attractive prospect would be for employers to support first-time buyers in saving a deposit for a home. They could either provide the minimum pension contributions or continue to offer competitive plans but at a lower rate than they do at present and allocate the remainder to the deposit. Better still, they could give employees the choice, just as many organisations already offer flexible benefits, with staff able to adjust annual leave and other allowances to suit their circumstances.
Where employers and employees are exceeding the combined 8% minimum, the employee should have the option to pay the additional contributions into a deposit account. These could operate similarly to the Help to Buy ISA scheme that, now closed to new applicants, benefited from a 25% government bonus and could only be used to buy a home. It would make sense to allow the tax relief for both employers and employees that currently applies to pension contributions.
Young people need access to their money now, rather than in decades when they can expect to have increased their incomes and paid off debts. The earlier you save for retirement the better, due to the power of compound interest, sometimes called the ‘eighth wonder of the world’. However, the same is true of home ownership, and supporting people onto the property ladder earlier in life is an enormous help to them financially. What they might lose from their pension pots, they could more than make up for by starting (and completing) a mortgage sooner, avoiding tens of thousands of pounds in rent.
Together with any savings of their own, support for a deposit as a benefit of work would make home ownership a realistic prospect for people years earlier than it currently is. After buying a property people could then switch to higher pension contributions if they wanted to, while continuing to build equity in their home rather than paying rent.
Critics will argue that helping first-time buyers with deposits is a demand-side measure likely to add heat to the property market and cause house prices to rise, along with the deposits required to secure them.
It’s certainly true that no policy will fully resolve the housing crisis in the absence of more homes being built. However, there is a separate problem of young people finding it virtually impossible to save money because of stagnant wages, high rent, the energy crisis and inflation. This pressure could be partly relieved by help from their employer to build a deposit. The best outcome would of course be for this form of saving to be made possible in addition to meaningful changes to the planning system.
Employers should have a real interest in supporting such a proposal. Owning a home and living with only those they wish to live with would surely boost employee wellbeing, and no doubt productivity too. From an employer’s perspective, it is wiser to invest in their employees during their working lives than to support their retirement.
For the Conservatives, this is an existential issue. As it stands they have precious little to offer young people, and efforts to solve the housing crisis are critical to stand any chance of earning their votes. Action on deposits requires little in the way of legislation and is unlikely to stir Nimbys in the way that vital but complex planning reforms would. The onus is on the employer, provided their contributions could be subject to the same tax relief as those for pensions.
The opportunity to start a workplace deposit account would be a visible policy intervention, the benefits of which would be tangible and obvious to young people. It is a quick win the Conservatives would be wise to implement and they might find some younger voters reward them at the ballot box.
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