Deducting and then investing money for employees

TheElite

Hi everyone

I work for a company that employs hundreds of employees and recently we've thought about giving employees an option (much like their pension) where we deduct a small portion of their income and invest it for them (into funds or other schemes). They will then be paid the profits after a certain amount of time.

I assume that we'll have to be registered with the FCA. It'll be on an opt-in basis. Do we have to ensure that employees get at least their invested sums back? Is there anything else we have to take into account?

Any guidance out there on this? I tried to find other employers doing this but couldn't come up with much on Google.

Thanks!

bostonerimus

Why would an employee give an employer money to invest for them? If you want to do something for your employees increase your contribution to their pension plan.

TheElite

They could invest themselves if they really wanted to. It's just an option for them that we could make available.

Plus, they may want some gains this year (however small) rather than waiting for a pension to start paying out when they're in their sixties.

greenglide

I work for a company

recently we've thought

So are you employee or employer?

I would have thought there were significant risks in the employer investing money for the employees.

Some kind of share option scheme with the company shares seems much more sensible. I assume the company is listed on the stock exchange?

TheElite

I work for the company and am in management. I would also be part of the team rolling it out to the rest of the employees. Don't see why the way I phrased it makes a difference.

This isn't where the employee buys shares in their employer, and no, we aren't listed.

Thanks

grey_gym_sock

TheElite wrote: »

They could invest themselves if they really wanted to. It's just an option for them that we could make available.

is the company an investment management company, or something in that general area? if not, why would employees want to use them for investment management?

Plus, they may want some gains this year (however small) rather than waiting for a pension to start paying out when they're in their sixties.

which they could do by taking out a stocks & shares ISA. no reason to link this to their employer.

aroominyork

I am going to broaden this to an aspect of what the OP suggested: that employees can have a proportion of their salary held back by the company and invested on their behalf. This is salary sacrifice which I find a strange practice which, for reasons I would like to understand, HMRC does not clamp down on. As an example, if an employee earns £30k and wants to pay 5% into their pension, they have their salary reduced to £28.5k and the employer pays it in. The benefit is that, because NI is payable on employees’ but not employers’ pension contributions, both parties save the NI.

(There are potential pitfalls for the employee, eg their declared salary when negotiating a new job is lower, they can borrow less against a mortgage because their income is lower etc.)

This is a legit and widely used loophole, but why does it persist? Shouldn’t HMRC either decide to make all pension payments – whether made by employer or employee – exempt from NI, or alternatively close the loophole?

TheElite, is the whole purpose of your proposition to save some NI by encouraging your employees to sacrifice some salary which you invest for them?

greatkingrat

Here is one company offering workplace ISAs. I would agree with other posters that I don't really see any advantage of this sort of scheme though, unless you are proposing to match the employees contributions?

https://www.smarterinvestment.co.uk/workplace/employers

TheElite

grey gym, no, we're not an investment firm. We mainly deal with invoice finance.

aroominyork, the NI aspect isn't something that we're concerned about. We're not doing this to save on NI.

Thanks

WobblyDog

Speaking as an employee, I would not be interested in the scheme described by the OP. I suspect it would be expensive for the employer to administer, and would lead to disgruntled employees if the value of their investments fell.

I would much rather my employer set up a salary-sacrifice pension scheme, if one doesn't exist already, and maybe slightly increased their contributions.

bostonerimus

If this is not salary sacrifice or getting any tax benefit or a stock purchase plan with a significant discount it's a pretty dumb idea when the employee can invest in ISAs etc on their own. What regulation is in place? and how do you propose to invest the money. It sounds like a way for an employer to get hold of an employees cash and then who knows what will happen.....too many issues for this to be sensible. The fact that the question is also being asked on this forum rather than to the company accountant/tax manager is also a bit worrying. Surely your finance manager has commented on this already?