Two million reasons for a shake-up

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Ascheme which gives workers the chance to buy their employer’s shares at discounted prices is in danger of “withering on the vine” if the government doesn’t make major reforms to boost interest in the plans, it has been claimed.

Save As You Earn (SAYE) schemes are government-approved plans set up 25 years ago to boost productivity by encouraging employee share ownership.

Under SAYE, also known as Sharesave, the employer grants an employee options to buy the employer’s shares at a fixed future date at a discount of up to 20 per cent of the current price.

SAYE is the most popular of all the employee share schemes in the UK, largely because it is low-risk, affordable for lower-paid workers, and the fact that any bonus or interest received on savings under the SAYE contract is also tax-free.

But SAYE has fallen in popularity in recent years, with the number of active schemes dropping by nearly 13 per cent to 1,165 in 2005, according to IFS ProShare, which collects data on the schemes.

SAYE supporters blame the fall on a number of factors, including a new requirement for businesses to account for SAYE scheme costs in their bottom line and the introduction in 2000 of the Share Incentive Plan (SIP), which some employers are taking up in preference to SAYE.

“Urgent action is needed to safeguard the future of a scheme that currently provides 2.2m participants a way to share in the fortunes generated by their own hard work and countless employers with a more engaged and motivated workforce,” says Malcolm Hurlston, chairman of the Employee Share Ownership Centre (Esop) in a recent letter to the government. He is urging the government to address the “damage” done by the rule which requires businesses to account for the costs of the schemes on their bottom lines.

His organisation is also calling on the government to make it more attractive for employees to shift shares exercised from SAYE share options into their pension schemes without incurring a capital gains tax penalty.

Currently, those wishing to transfer SAYE shares into an Individual Savings Account (Isa) can do so without incurring a CGT charge if this is done within 90 days of exercising their options.

However, this tax perk does not apply to the similar transfers into registered
pension schemes.

“I believe this is an anomaly,” says Sarah Pickering, a partner with Ernst & Young and also an advisory committee member of Esop.

“It doesn’t make sense that you can transfer to an Isa but not a pension without this charge. A lot of people would find this transfer attractive and it would make pension saving more attractive in the long term.”

The government has also come under fire for not allowing employers the flexibility to offer deeper discounts on their options beyond 20 per cent.

The government earlier this year rejected the call to raise the limit on monthly savings above £250, saying this would benefit only those who already save the maximum amount, could be costly to the Exchequer and would not lead to an increase in wider employee share ownership.

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