It gets worse for SAYE schemes: Time to switch?
As a nation we are renowned for wanting the best deal, whether this is on our insurance policies, credit cards, utility suppliers, mortgage etc, but when it comes to some products there is a reluctance to switch. I have yet to come across a 'compare my share scheme' website (although we do have a great share scheme selector tool on our site) however it is now clear if you have an SAYE scheme it is time to switch!
Our article 'SAYE share options: there are better deals out there' published in February this year highlighted the measly interest rates for employees saving under an SAYE scheme. It has just been announced that the interest rates are to be cut again!
For 3 year savings contracts under an SAYE there is now no interest at all. 5 and 7 year savings contracts have also had their rates slashed. The early leaver interest rate which used to be 0.12% is now also nil.
These changes are being brought in despite increasing inflation over the past year and general upward pressure on retail interest rates.
Another disadvantage in operating an SAYE is the options expensing requirements. Any discount offered to employees on the fair market value of the shares (which can be up to 20%) must be expensed to profit and loss. If any options are withdrawn early under an SAYE, the result according to options expensing is to accelerate the charge rather than reduce it. We have previously written about the lunacy of the options expensing practice, so please read this article if you would like any further information.
The best and closest alternative, the SIP
The Share Incentive Plan (SIP) is an all employee plan which has the added bonus of contributions to the scheme being taken from gross income. Participants can then use their deductions for the purchase of Partnership Shares. This plan allows for the company to match any contribution the employee makes by offering up to a 2 to 1 ratio on the Partnership Shares that have been purchased. The plan also provides for the issue of free shares.
Once shares have been held in trust for 5 years their value is tax free, after 3 years all gain is tax free. Although the amount you can save per year is lower under the SIP (capped at the lower of £1,500 or 10% of the employee's salary), the SIP is potentially much more tax efficient than the SAYE and it is for this reason we would recommend that companies who are operating an SAYE scheme think again.
For other alternatives besides the SIP please refer to our previous article published in February. If you are a smaller company it is worth considering the Enterprise Management Incentive (EMI) and if you do not meet the qualification criteria for the EMI scheme you can always look at the Company Share Option Plan (CSOP).
For more information on the SIP download our free fact sheet on the plan. If you would like more information on how you can switch from the SAYE to SIP please call us on 020 8949 5522 and ask to speak to any of our advisers.