With almost 1.5 million Save-as-You-Earn (Sharesave) accounts, it’s clear that this plan provides participants with an easy way to save, invest and share in the future success of the company they work for.
In this, our second share plan article, we focus on the benefits of Sharesave to companies and employees. To read our previous article on the benefits of Share Incentive Plans (SIPs), click here.
How does Sharesave work?
Sharesave is an all-employee share plan that gives participants a tax-efficient way of saving towards buying shares in their employing company, at a price fixed at the start of the contract (the ‘option price’), with a discount of up to 20% of the market value. Employees can save anything between £5 and £500 per month for three or five years which they can then use to buy shares at the option price. Savings are automatically deducted from employees’ net pay and paid into a savings account, protected under the Financial Services Compensation Scheme.
Savings accumulate over the contract term and once the plan has reached maturity, employees have six months to decide whether or not to use those savings to buy shares. If the market price is lower than the option price, participants can choose to have their savings repaid, without penalty, protecting them from any loss.
If the market price is higher than the option price, employees have an opportunity to use their savings to buy shares in their employing company. Regardless of how much the share price may have risen during the contract term, participants can buy shares at the pre-set option price. Once acquired, employees can choose to sell them immediately or keep them so they can be sold at a later date; assuming the market value at the time of sale is higher than the option price paid for them, a profit will be made.
What makes Sharesave so attractive to employees is the safety net of being able to receive back their savings if share prices fall, whilst providing significant growth and profit potential if share price rises.
Jennifer Rudman, Strategic Development Manager, Employee Plans says:
Sharesave is a tax-advantaged share plan, with the most recent Government statistics showing annual tax savings of £360 million. Key to Sharesave’s success is that if share prices rise there is potential for gains to rise to billions of pounds.
Great for you, great for your employees
Great for you
Sharesave is a great way to build and strengthen engagement with existing employees and prospective talent. The plan increases employee awareness of what influences a company's success and what they stand to gain if the company performs well, aligning their interests with other company stakeholders.
Gemma Paull, Client Services Manager says:
We look after easyJet’s Sharesave plan which is enjoyed by almost half of their workforce. On average they contribute £226 of their salary per month, evidencing the popularity of the plan and the commitment of their employees to ‘share in the success' and become future easyJet shareholders.
Great for your employees
Throughout the duration of the plan savings are protected and at maturity employees can choose to buy shares or withdraw their funds. If they buy shares, they can sell some or all immediately to realise any profit or retain them longer term. If they choose to keep shares and become shareholders, they are eligible to receive dividends and vote on decisions that will decide the future of the company.
Although deductions are from net pay, there are tax advantages for employees as they don’t pay income tax or NIC on the profit they make at the time they’re acquired. There may be Capital Gains Tax (CGT) to pay on profits when the shares are sold, although in the 2017/2018 tax year, gains up to £11,300 are not subject to CGT. Additionally, no CGT needs to be paid if shares are put straight into a pension or are put into an Individual Savings Account within 90 days of buying them, subject to the annual limits.
Phil Ainsley, Director of Employee Services says:
Sharesave is as relevant today as when first introduced back in 1980. The decision whether to participate has often been called a ‘no brainer’ and its capacity to engage employees, raise financial awareness and build individual wealth is compelling.
There are new generations joining the workforce where Sharesave’s potential to offer low-risk investment and deliver a lump sum at maturity make it critical that we spark their interest and get them on board.
Sharesave continues to be one of the most popular all-employee share plans in the UK with Equiniti managing 550,000 accounts; 39% of all Sharesave accounts. In this competitive job market, share plans enhance employees’ experience and not only help to attract new talent but also retain valuable staff. It is often a first step on the investment ladder and encourages them to save for their financial future. Sharesave promotes loyalty and reduces staff turnover, whilst giving employees a sense of ownership, motivating them to become more productive.
If you would like further information about launching Sharesave, please don’t hesitate to get in touch with your Relationship Manager.