- In 2024/25 there were 800 companies running Share Incentive Plans (SIPs) and 480 running Sharesave (or SAYE) schemes (source: Employee Share Scheme statistics – GOV.UK)
- Within SIPs, 400 companies allowed staff to buy partnership shares, 280 offered matching shares and 120 gave free shares
- SAYE scheme members saved £370 million in income tax and NI, while SIP scheme members saved £470 million
- But the two schemes are very different, so it’s vital to know what’s on offer
- Employee share schemes can provide a first step to investing for many people
Sarah Coles, head of personal finance at AJ Bell, comments:
“Tens of thousands of people have signed up to all-employee share schemes, but while the most well-known SAYE scheme is still on offer at 480 companies, far more are offering the relatively new SIPs. The fact that both schemes are so different, and have very different risk profiles, means it’s vital to understand the scheme you’re being offered and whether it suits your needs.
“Both are all-employee share schemes, so instead of being exclusive for senior staff, they’re available to everyone. Both provide a brilliant opportunity for employees to benefit from the growth in the overall business and can also be an excellent introduction to investing.
“For many people this could be the first time they’ve ever held an investment on the stock market, and it can be a stepping stone toward other long-term investments. If you have access to a company share scheme and an employer pension, your company is giving you a great platform to get started investing. Some employees will use that experience subsequently go on to invest in a wider range of things such as funds or shares in other companies through their own ISA or investment account.
“For the companies that offer these schemes it can also be a great way to encourage everyone in the company to help drive forward the success of the business, which is clearly a win-win for staff and employers.”
What is a Sharesave scheme?
“The Sharesave scheme is the best known, largely because it has been around since 1980 so it’s more familiar. The most striking feature of the scheme is that you can take advantage without taking any investment risk at all.
“Employees get the chance to put up to £500 a month into a specific savings account for a fixed period of three or five years. At the end of that period, you get the chance buy shares in the company you work for with all the money in the account. The key is that the price you buy at is fixed when the scheme starts. It might be fixed at the price at the time, or they can offer a discount of up to 20%. Because people are given the option to buy, these are known as share options.
“If the scheme is launched with an option price of £5, and by the time the scheme matures three years later the shares cost £10 in the stock market, you can buy and sell immediately and double your money. Crucially, if the share price has dropped below the fixed price when the scheme matures, you don’t need to buy them and make a loss, you can just get your money back. It means if shares in your company are worth £2.50 when the scheme matures, you’ve lost nothing.
“You don’t have to sell them immediately. However, if you hang onto them at that stage the risk profile of the scheme changes because you are now investing, and will gain or lose when the share price rises or falls. If you take this approach, you can move the shares into an ISA to protect the investment from dividend tax or capital gains tax.”
What is a Share Incentive Plan scheme?
“The Share Incentive Plan was introduced in the year 2000. It comes in several guises, and the risk you’re taking depends on what your employer offers. Some companies simply allow you to buy up to £1,800 a year of what are known as ‘partnership shares’ in the company you work for. The advantage this has over just buying shares on the stock market is that partnership shares can be bought from your pay before tax and National Insurance is taken off – although to keep the tax perk you need to hold them in the scheme for five years.
“If you transfer them into an ISA within 90 days of the shares coming out of the scheme, you don’t have to pay any tax on the transfer and there’s no capital gains tax or dividend tax to worry about either.
“This is a very different beast from Sharesave, because you are taking investment risk from day one. Some companies will match the partnership shares you buy with freebies – called matching shares. This can be anything up to buy-one-get-two-free. You’ll still be taking investment risk if you have these shares, but it’s softened enormously, because if you’re getting three for the price of one, the shares could technically lose two thirds of their value before you’re worse off.
“Some companies will give you free shares – worth anything up to £3,600. These will rise and fall in value. However, because they cost you nothing in the first place, you have nothing to lose.
“The fact that you’re a shareholder from day one of the SIP means you need to be prepared to accept the investment risk of holding single company shares in your own employer. However, if that works for your circumstances, it has huge benefits – not least that it helps build your confidence with investing. Experience with a scheme can help empower people to diversify into funds and shares, and build a bigger balanced portfolio. It’s why it can be such an invaluable first step on the road to investment.”
