Share Incentive Plan - right investment for me?

Throbbe

Hi

I'd welcome your thoughts on my situation. If it helps, I'm nearly 40, am reasonably happy with my pension arrangements, and am not a higher rate taxpayer, although I'm not far off.

I have a number of debts, mortgage, loan, credit cards, all at fairly low rates of interest, the loan is the highest at 7.8%APR. I have no savings to speak of.

My youngest child is starting school in September, which will reduce my childcare costs by around £150/month. Currently I use the full entitlement of a salary sacrifice childcare voucher scheme, but in September I will reduce those contributions by around £85.

The obvious thing to do would be to use the extra £150 to reduce my credit card debts more quickly. While I move around interest free deals regularly there is always the risk that these deals might dry up in future.

However, the fact that I have these debts in the first place might suggest to you that I'm not the most disciplined person. On that basis I'm tempted to put the £85 that is no longer going into the childcare voucher scheme into my employers SIP instead. It's not money I'll miss as I've never had it in my take home salary, it's more tax efficient, and it means I can't do anything silly with it.

My employer is a FTSE100 company, and while life doesn't offer any guarantees I'm confident they're stable, and if they were to get into trouble I would expect them to be acquired by a rival. Without wishing to sound too confident, I would also expect to be able to secure employment in my field fairly easily, so if I lost the bulk of my savings I still wouldn't end up homeless.

So, should I address the debts first, or start saving?

Perelandra

What are the terms of the employer's SIP? Do they offer matching shares (at what rate), and what are the holding periods needed to keep those matching shares/gain the tax advantages?

Throbbe

Perelandra wrote: »

What are the terms of the employer's SIP? Do they offer matching shares (at what rate), and what are the holding periods needed to keep those matching shares/gain the tax advantages?

Other than the tax advantages there are no further benefits. I have to hold the shares for 5 years to avoid Income Tax and NI deductions, and if i chose to reinvest dividends 3 years on those.

calypso_rhapsody

Are you managing to reduce your debts at present? How long will it take you to get debt free (maybe excluding the mortgage).

If your debts are increasing then it would (to me) be silly to be saving into an equity scheme of any sort, whatever the tax benefits. If they are decreasing in any case and you can see that you should be able to pay them off over say the next 3 years then the decision would perhaps be more difficult.

Is equity (a five year plus investment) right for you or would you be better saving into say a cash ISA instead? Depends on your attitude to risk ... not sure anyone can answer that for you!

MoneySaverLog

Just have to remember it is a rolling 5 years every month you invest. But a good way to buy shares in your company without paying tax and ni.

Obviously the tax advantages increase if you're a higher rate tax payer :-)

Perelandra

Throbbe wrote: »

Other than the tax advantages there are no further benefits. I have to hold the shares for 5 years to avoid Income Tax and NI deductions, and if i chose to reinvest dividends 3 years on those.

If the only incentive is the tax efficiency then personally I would either:

a) Work out how long I could be *sure* of staying with the company, subtract 5 years from that, and then pay into the SIP for only that long. (i.e if I could be sure I'd be with them for 6 years, I'd pay in for 1 year. If I was only sure I'd be with them for 2 years, I wouldn't pay in at all).

b) Start paying off the debt.

However, in most cases it would be 2) since I couldn't be sure I'd be with the employer for over the 5 years. Without any employer matching, I wouldn't feel much of an incentive to gamble on being with the employer long enough to gamble on the SIP.

Throbbe

calypso_rhapsody wrote: »

Are you managing to reduce your debts at present? How long will it take you to get debt free (maybe excluding the mortgage).

If your debts are increasing then it would (to me) be silly to be saving into an equity scheme of any sort, whatever the tax benefits. If they are decreasing in any case and you can see that you should be able to pay them off over say the next 3 years then the decision would perhaps be more difficult.

Is equity (a five year plus investment) right for you or would you be better saving into say a cash ISA instead? Depends on your attitude to risk ... not sure anyone can answer that for you!

Yes, debts are decreasing, and I expect to be debt free in about 3 years time (mortgage excepted).

Throbbe

Perelandra wrote: »

If the only incentive is the tax efficiency then personally I would either:

a) Work out how long I could be *sure* of staying with the company, subtract 5 years from that, and then pay into the SIP for only that long. (i.e if I could be sure I'd be with them for 6 years, I'd pay in for 1 year. If I was only sure I'd be with them for 2 years, I wouldn't pay in at all).

b) Start paying off the debt.

However, in most cases it would be 2) since I couldn't be sure I'd be with the employer for over the 5 years. Without any employer matching, I wouldn't feel much of an incentive to gamble on being with the employer long enough to gamble on the SIP.

I've been with the same employer for 11 years and have no burning desire to move, but yes, it's something to consider. Thanks.

Throbbe

MoneySaverLog wrote: »

Just have to remember it is a rolling 5 years every month you invest. But a good way to buy shares in your company without paying tax and ni.

Obviously the tax advantages increase if you're a higher rate tax payer :-)

Yep, i understand that it's a rolling 5 years, but a point worth making. Thanks.

Hopefully this time next year I will be a higher rate tax payer!