Is company SIP worth it?

smnberryman

Hi

I am enrolled in the companies Share Incentive Plan. I buy Partnership shares out of pre-tax pay and receive a Matching share for every 3 Partnership shares.

However if I leave the company within certain time period(s) I will be liable for the tax + NI.

However I was thinking is it ever possible to be "out of pocket" - for example if I were to leave in the holding period?

I just want to determine if it would cost me money to leave the scheme early.

Thanks

atush

What is the market like for the shares you have bought? Or do you have to return them and get your money back?

I think, if you can hang on until they are vested, given the savings of 32% tax/NI and the free shares it would be a no brainer?

The worst that could happen is getting your money back less tax. The only lose here is you could have done better in a pension (but could put that cash in a
pension)

I suppose the company could fail- how likely is that?

Michael_Nottingham

Yes you could loose out - and this links your fortunes more to your employer

You are actually buying the shares, so if the share price drops and you leave the scheme early you will have potentially lost money on the share and still pay tax (on either exit or initial price depending on how long you have them when you leave).

On the other hand you could also make a decent return.

What are the rules around the matching shares if you leave in your scheme? Do you loose them if you leave in a certain time?

Worth reading these articles on thisismoney (DailyMail) though neither are too recent

From 2010
From 2013

It all depends on your attitude to risk

Gadfium

Michael_Nottingham wrote: »

Worth reading these articles on thisismoney (DailyMail) though neither are too recent

From 2010
From 2013

One article is about Sharesave and the other SIP, which are different schemes.
SIP allows you to buy shares pre-Income tax and NI. If you then hold the shares for 5 years you can sell them without any Income Tax liability. So they can be quite attractive. Don't forget that a BRT pays NI at 12% so the total "saving" is 32% off the shareprice.

You will receive dividends as long as you hold the shares, which can be a bonus.

Ultimately , if you don't want the risks of holding shares, or if you don't expect to be in the company for a long perod, then a SIP isn't for you.

Personally, I put in the maximum. I've have about £20K of shares in my SIP, but my total contributions to date are just under £10K. For me, it's definitely worth it.

Michael_Nottingham

Yes the second article focuses on a SAYE scheme, but the blue box part way down is a good summary of SIPs

But yes the two schemes are very different - ultimately as you say you should decide whether you want the investment rather than just investing to secure the tax savings

Gadfium

Another thing to consider is if you are nearing retirement. Then your shares that are "conditional" (still subject to IT) will be released as "unconditional" which means that you can sell them without any IT obligations.

BeansOnToast_2

The SIP scheme where I work is less generous than the OP's in terms of employer matching, but it has still generated a decent return. I currently have about £16k of shares in the scheme, which cost me about £5.5k taking into account the tax and NI saving. I've also sold £4k of shares which cost £2k.

My plan is to sell whenever I have about £4k of unrestricted shares, so that I don't end up with too much of my wealth invested in my employer.

Johan007

If you leave early as well as paying the TAX there are often rules that you will not get your matching share unless perhaps you are made redundant. So do keep them for 5 years.

A SIP gives you the best chance of actually making money on shares instead of what eventually happens to 99% of personal investors!!! It is often the best long term investment. If your company is not a FTSE100 company I would look to sell within 5 years due to higher risks associated with smaller companies.

You could take up the SIP for 1 year and then stop paying in and hold for 4 more years. Especially if like me you get a fantastic deal for the first year; I got 1 free share for every share bought.

gadgetmind

Johan007 wrote: »

A SIP gives you the best chance of actually making money on shares instead of what eventually happens to 99% of personal investors!!! It is often the best long term investment. If your company is not a FTSE100 company I would look to sell within 5 years due to higher risks associated with smaller companies.

Remember that no matter what the size of the company, you're taking on single company risk, which is something that a wise personal investor can otherwise avoid.

I'm not saying don't do a SIP (I do one myself) but it's not as much of a "no brainer" as an SAYE for instance.

redpete

BeansOnToast wrote: »

My plan is to sell whenever I have about £4k of unrestricted shares, so that I don't end up with too much of my wealth invested in my employer.

This is key for me. I set the threshold at about £1000 worth of 'available' shares which I sell. I might miss out on some capital growth and dividend income but the larger benefit of tax-free investing and matching shares has already been crystallised.


Having a large proportion of your investments/savings tied in with your employer is generally considered a 'bad thing' and I'm writing with the experience of someone who worked for Marconi when it went bust and its shares became essentially worthless.

Gadfium

redpete wrote: »

This is key for me. I set the threshold at about £1000 worth of 'available' shares which I sell. I might miss out on some capital growth and dividend income but the larger benefit of tax-free investing and matching shares has already been crystallised.


Having a large proportion of your investments/savings tied in with your employer is generally considered a 'bad thing' and I'm writing with the experience of someone who worked for Marconi when it went bust and its shares became essentially worthless.

I've started using my SIP to fund some pension AVCs. I am now at the stage where shares are coming free of the 5 year holding period, which means that they can be sold free of Capital Gains and Income Tax. I aim to sell the available shares each year and pay them into the pension as AVC contributions. That way I benefit twice, possibly three times- I buy at 20% less than market value, get tax relief when the proceeds of selling them goes into the pension and probably benefit from growth in the share price.