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• Sharesave schemes make suitable workplace savings options for employees of all ages and salary levels, with a minimum monthly savings requirement of £5.
• After saving for a fixed period of three, five or seven years, employees can choose to take their savings plus a tax-free bonus or use the savings to purchase shares.
• Employees also have the option to roll over shares into a corporate Isa or a stakeholder pension, which can mitigate any capital gains tax due.
Sharesave schemes appeal to all levels of the workforce and can help to improve employee engagement, says Tynan Barton
Introducing a workplace sharesave scheme brings more benefits than ensuring staff exercise their stake in the business by turning the lights off at the end of the day.
Sharesave schemes offer employees an alternative workplace savings vehicle to pensions or corporate individual savings accounts (Isas). At the end of a fixed period, they can either take all the money they have saved plus a tax-free bonus, or can exercise their options to buy shares. If the shares have risen in price over that period, most people are likely to exercise those options and take up their shares. Phil Hall, spokesman for Ifs Proshare, says: “We find that, contrary to the common misconception, most people will not then sell their shares, but will hang on to them as an investment.”
Sharesave offers staff a risk-free savings option, because after saving between £5 and £250 a month over a fixed period of three, five or seven years, they have the option to reclaim their capital plus a tax-free bonus.
Saving into sharesave schemes has increased in recent years. The IfsProshare SAYE (sharesave) and share incentive plan survey 2009, published in May 2010, found that the weighted average monthly savings for new grants in 2009 was £107, a 24% increase from £86 in 2008. The survey also found 23% of sharesave participants saved the maximum £250 across all grants, up from 18% in 2008.
Good savings strategies
Roger Breeden, a principal at Mercer, says: “Sharesave schemes do make good savings strategies for employees. They provide a stake in the business and employees’ interests are clearly aligned with those of the employer. They are relevant for all staff, at all earnings levels and ages, as long as they are prepared to commit some money.”
Sharesave schemes also help staff build up a tax-efficient savings mechanism. John Daughtrey, head of employee share plans business development at Equiniti, says: “The discipline is there for someone to sign up and have money deducted on a monthly basis without having to visit the building society.”
For employers with several generations of staff in the workplace, sharesave can complement other savings vehicles, especially for younger workers who may be put off by longer-term investment. Daughtrey adds: “The opportunity to save for three or five years with the potential gain from a rise in share prices, or at least the chance to get [their] money back and a tax-free bonus, is probably seen as slightly more attractive.”
For employers, sharesave schemes are considered a good tool to help develop positive relationships with staff, encouraging them to share a common goal for the organisation to succeed. Ifs Proshare’s Hall says: “Employers large and small do value the role sharesave schemes can play in helping employees feel more engaged.”
After exercising their options, employees are liable to pay capital gains tax on any gains made if the total amount is above the annual threshold (£10,600 in 2011/12). But they can roll the proceeds into an Isa or a stakeholder pension and maintain the tax status of those two plans. Jonathan Watts-Lay, director at Wealth at Work, says: “There is good reason to transfer money into an Isa. An employee can mitigate capital gains tax by doing so.”
Mercer’s Breeden says workplace savings platforms, or corporate wraps, can give employees a better view of their options.
Read more on employee sharesave schemes
