UK’s All-Employee Share Schemes At Rock Bottom

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All-employee share schemes at rock bottom, while retail investment booms

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  • In 2019/20, 260 UK companies granted £1.82 billion of options within SAYE (or Sharesave) schemes to 310,000 employees. The number of firms granting options was down from 290 a year earlier and 300 the year before that.
  • 110,000 people exercised options within a SAYE scheme. This was the same number as a year earlier, and the joint lowest in over 30 years - since 1988/9.
  • There were 440 companies offering Share Incentive Plans (SIPs), down from 470 a year earlier.
  • 2.7 million people bought partnership shares in a SIP, down from 2.8 million a year earlier and 4 million a decade earlier. This was the lowest number bought since 2002/3.

Share scheme statistics have been released for 2019/20.

A Dire Year For Workplace Share Schemes

Sarah Coles, personal finance analyst, Hargreaves Lansdown:

“At the very end of the 2019/20 tax year, overall investor numbers soared, and thousands of people flooded into the markets. So at first glance, it seems peculiar that workplace share schemes had such a dire year. The number of employees exercising options in Sharesave schemes was at rock bottom for the second year running: the joint lowest level for 30 years. Meanwhile partnership shares bought through SIPs were at their lowest for almost two decades.

The dismal level of Sharesave options being exercised is partly a function of the fact the number of schemes on offer has been falling, and partly because of how they work. We’d been through a few volatile years on the markets, and saw a crash at the end of the tax year. This is likely to have meant many of the SAYE options were underwater, so there was nothing to be gained exercising them.

The lack of enthusiasm for partnership shares in SIP schemes, meanwhile, may owe much to the fact that the buying opportunity offered by the crash only came in the last couple of months of the tax year, so most people were making buying decisions based on a few relatively volatile years and uncertainty over the future.

Even after the crash, buying shares in your employer isn’t always seen as the same buying opportunity as snapping up a robust household name that has been pushed down by market movements. Those who were worried about the future, and the impact on their employer, were reluctant to put all their eggs in one basket and invest with their employer too.

However, these schemes can offer a brilliant way into investing for first timers. The Sharesave scheme is a risk-free opportunity to take advantage of the growth in the share price over 3 or 5 years. For anyone who has been tempted to invest over the past year but is worried about taking a risk, this offers the best of all worlds.

The SIP is less of a no-brainer, because in some cases it’s simply a tax-efficient way to invest in your employer, which requires you to hold the shares for years if you want to take advantage of the tax breaks, which won’t always appeal. However, if your employer offers matching shares, it may well be the incentive you need to dip your toe in the investment waters.”

The Plans

Save as you Earn (SAYE) or Sharesave

These are the traditional schemes that people are most familiar with, and have been around since the 1980s. They are very popular because they offer a risk-free opportunity to take advantage of any rises in the company share price.

You can save up to £500 a month for a fixed period of three or five years. At the end of the period you will usually get a tax-free bonus on your savings (although at the moment schemes are paying no bonuses because rates are so low).

At that point you can buy shares with the proceeds – at a price that was fixed at the outset. It can be fixed at anything up to a 20% discount on the share price at the start of the scheme. Alternatively, if the fixed price is higher than the current share price, you can simply withdraw your savings and any bonus.

If you buy the shares, you can choose to hold them or sell them for a profit. If you make more than the capital gains tax allowance, you may have to pay capital gains tax, but if you put them into an ISA within 90 days of buying them, or a pension immediately, the gains will be tax free.

Questions to ask before you join a SAYE scheme

1.  Can you afford to save a monthly sum?

2.  Are you expecting to stay for the term of the scheme? If you change jobs you usually just get your money back.

3.  What are you planning to do at the end of the scheme? If you are planning to buy and sell the shares for a profit immediately, you’re not taking any risk. If you are planning to hang onto the shares, are you happy that single company shares are right for your portfolio?

Share incentive plans (SIP)

These have been around since 2000. They let you buy shares in the company you work for tax-efficiently.

Each year you can buy up to £1,800 worth of shares (or 10% of your salary - whichever is lower). You buy them out of your pay before tax and national insurance, and they go into a trust. As long as they stay there for at least five years, you keep these tax perks. When you sell, there may be capital gains tax to pay, but only on the gain made from the time the shares leave the trust, rather than the date you acquired them. You can transfer shares from a SIP into an ISA within 90 days, and protect them from capital gains tax too.

Generous versions of the share incentive plan

When the company offers a SIP, they have the option to introduce bonuses to make them even more attractive. These can include free shares – worth anything up to £3,600, and matching shares: the company is allowed to offer anything up to buy-one-get-two-free deals.

Finally, they might also allow you to spend any dividends on these shares on buying more company shares within the scheme. To stay tax-efficient, you’ll have to keep each tranche of these ‘dividend shares’ for at least three years.

Questions to ask before you join a SIP

  1. What kind of a deal is on offer?
  2. Do you want to take the risk of investing in single company shares?
  3. Does it make sense with the rest of your portfolio?
  4. Aside from the scheme, what is your view on the outlook for the company?
  5. Will you stay with the company for at least five years? If you leave before then, there may be tax to pay.

About Hargreaves Lansdown

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