Should I join employer UK Share Incentive Plan?

tashalove

Hi

My employer has a UK Share Incentive Plan available to myself and I was wondering if it would be a good idea to join? How does it actually work and how beneficial is it compard to investing on your own?

I have no previous Stock and Shares experience or investment knowledge so I feel as though I am taking a huge risk!

Is this a safe investment and would it be worth it? The min contribution is £10 and at the moment I'm thinking that if I decide to join, then this would be the amount I am willing to pay a month.

StephenM_2

The Share Investment Plan I'm in allows me to invest £1500 a year from pre-tax income. I don't pay tax or National Insurance on this income, so effectively its only costing me £1059. My employers add on 15% free shares.

So effectively I'm paying £1059 for £1725 worth of shares. However, I can't sell them for 5 years unless I pay back the tax and NI saving.

In the meantime, those shares can rise or fall as with any other shares. In my case my employers and their shares are American, so there's a currency risk as well as the share price risk.

doberryfirkin

I am also in my employers SIP. As far as I can see it offers a number of advantages; first it buys the shares from your gross salary / wages so avoids tax, second it allows you to sell them, after a period, free of tax. My employer also encourages through free share issues. For that reason I have participated - but obviously the values can go down as well as up.

StephenM_2

By the way, I would advise that you don't sign up if you don't have any other savings for two reasons:

1. The money will effectively be tied up for 5 years unless you are prepared to pay back the tax.
2. If your employer goes bust, not only will you lose your job, you'll also lose your savings.

tashalove

Thanks for the above replies.

If I put £10 every month towards it and treat it like a savings account where I cannot withdraw then would that sound reasonable? I'm not even sure if I would be staying with my employer for 3 years + so in that case would it be pointless for me to even consider the scheme as I would then have to pay back tax and NI?

And is there a difference between person A paying £10 a month and another employee (person who pays £250 a month towards this plan. Does this mean person B effectively buy more shares because they are contributing more?

I'm a bit confused sorry!

StephenM_2

You can't put in £250 a month in a SIP. The maximum is £125 a month. My employer has a scheme so that you can contribute a maximum of 10% of salary, but only £125 a month goes into the SIP. The rest goes into a scheme that still gets the free shares but doesn't have the tax advantages. However you can sell at anytime without penalty.

As well as £250 a month you also mentioned a minimum of £10 a month. Are you sure its not a Save As You Earn Share Option Scheme, because those are the maximum and minimum limits in that. They work differently to a Share Incentive Plan and are less risk. I used to be in one, before my UK employer sold us to the Americans.

tashalove

StephenM wrote: »

You can't put in £250 a month in a SIP. The maximum is £125 a month. My employer has a scheme so that you can contribute a maximum of 10% of salary, but only £125 a month goes into the SIP. The rest goes into a scheme that still gets the free shares but doesn't have the tax advantages. However you can sell at anytime without penalty.

As well as £250 a month you also mentioned a minimum of £10 a month. Are you sure its not a Save As You Earn Share Option Scheme, because those are the maximum and minimum limits in that. They work differently to a Share Incentive Plan and are less risk. I used to be in one, before my UK employer sold us to the Americans.

Ah sorry I have been given the 2 options, the one I'm looking at is definitely the SIP and it says between min £10 to max £125. Sorry the £250 was for the ShareSave one.

Hope you don't mind, but did the SIP benefit you in any way? Any other cons other than tying up your money and obviously the risk of losing your money if firm goes bust.

StephenM_2

I've only been in it for just over 3 years, so I haven't cashed any of it in yet. I reckon I'm sitting on a paper profit of about £3600 taking into account the tax advantages, but that could all vanish between now and when I sell.

Sharesave schemes are less risky because you can get your cash back if your shares do badly.