There's been a big increase in share ownership though employee savings schemes.
I've long been a fan of employee share-ownership schemes, which allow employees of listed companies to buy shares at a discount to the market price and/or receive free shares when they buy shares.
The two most popular employee share plans are Save As You Earn (SAYE, or Sharesave, has been around for 30 years) and Share Incentive Plan (SIP; now in its 10th year). According to ifs ProShare, which promotes employee share ownership, more than two million UK employees currently participate in one or both of these schemes.
SAYE, can I save?
The good news is that ifs ProShare's latest annual survey of SAYE and SIP schemes shows a big jump in employee savings through share ownership. The survey found that the average monthly contribution per employee to SAYE contracts has shot up to £111 in 2009 from £82 in 2008, which is a rise of 35%.
What's more, almost a quarter (23%) of employees paid the maximum monthly SAYE contribution of £250. However, this limit has been in place since 1991, and I agree with ifs ProShare that it should be raised. Indeed, had the monthly SAYE limit risen in line with inflation, it would be over £400 today.
In addition, the number of employees joining SAYE schemes increased by a sixth (16%). In 2009, over 589,000 people took out a three-, five- or seven-year SAYE contract, versus under 506,000 in 2008. Lastly, three-quarters of companies which offered SAYE contracts in 2009 gave their employees the maximum 20% discount off the market price, which is unchanged from 2009.
SIPping at shares
The second-most popular employee share scheme is Share Incentive Plan (SIP), which was launched in July 2000. The average monthly contribution to a SIP rose to £78 in 2009 from £69 in 2008, a rise of 13%.
The most popular SIP involves 'Partnership Shares', whereby employees can buy shares using their pre-tax salary, up to a limit of £125 a month or 10% of salary, whichever is lower. These shares are free of income tax and National Insurance contributions (NICs), so shares worth £125 can be had for as little as £63.75.
An even more valuable benefit comes from 'Matching Shares', whereby each share bought is matched by up to two more free shares. Likewise, employers can grant up to £3,000 of 'Free Shares' a year to each employee. Again, these are free of income tax and NICs.
Any dividends paid out by SIP schemes can be reinvested to buy extra 'Dividend Shares'. All SIP shares must be held in trust for five years before they become free of income tax and NICs.
According to ifs ProShare, a tidy £4.5 billion was invested in SIPs at the end of 2009, valuing the average holding at nearly £4,600.
Two clouds on the horizon
As a cheerleader for employee share-ownership, I can see two problems ahead.
First, cost-cutting companies may decide to end or suspend their SAYE and SIP schemes in order to save money. For example, I know of one mega-cap FTSE 100 firm which has suspended its SAYE scheme for 2010 and 2011. The first reason is to save on the cost of administering its SAYE scheme. The second reason is that the shares finished 'under water' for the past two years. In other words, the company lost money when it bought shares upfront to sell to SAYE members at a discounted price.
The second problem is that the coalition government has proposed increasing the rate of Capital Gains Tax (CGT) to bring it more in line with income-tax rates. Currently, the main rate of CGT is 18%, but this may rise to 40%, possible as soon as the emergency Budget on 22 June.
Hence, ifs ProShare has urged HM Treasury to safeguard the interests of SAYE savers by ensuring that higher rates of CGT will not damage the rising popularity of these schemes.
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