Deducting and then investing money for employees

greenglide

aroominyork wrote: »

Why not? The OP wants to encourage/offer people a way to save at no cost to the firm. If the employees are not already in a pension scheme they should start there and not with an ISA. If they are in the pension scheme, surely an AVC is the best way to save more if they are to do it through the firm.

AVCs are only relevant in a DB pension scheme.

Did you mean additional contributions to a DC scheme?

aroominyork

I've never heard of AVCs not working in DC schemes. I have made them in my organisation's DC scheme. I think you have your DB and DC confused. I can imagine AVCs not working in a DB scheme.

bigadaj

aroominyork wrote: »

I've never heard of AVCs not working in DC schemes. I have made them in my organisation's DC scheme. I think you have your DB and DC confused. I can imagine AVCs not working in a DB scheme.

No, you're misunderstanding, they have always been historically associated with db schemes.

Th term is now quite anachronistic, as contribution levels in DC schemes are purely optional, you can put in as little or as much as you want, subject to annual allowance limits.

bowlhead99

I've never heard of AVCs not working in DC schemes. I have made them in my organisation's DC scheme. I think you have your DB and DC confused. I can imagine AVCs not working in a DB scheme

An AVC literally means an "additional voluntary contribution" over and above the mandatory contributions an employee needs to put into his employer's occupational pension scheme to buy the primary benefits.

Occupational pension schemes come in DB or DC flavours. In "the old days" more people with occupational schemes were DB than DC, hence the term AVC is more likely to be associated with a DB scheme because of that history. Depending on what was offered, an AVC for a DB scheme could either buy extra years for the purpose of paying out more defined benefits, or could be held in a separate pot of invested value (a money purchase basis, alongside the DBs).

Historically it was rarer for occupational schemes to be DC than DB, but some could be DC and perhaps that is what aroominyork has. However these days the employers who want to derisk and have the admin taken off their hands will not run an occupational scheme (DC or DB) at all... they will run a "Group Personal Pension" type scheme which is basically just as if the investor had a personal pension but it gets periodic contributions from the employer and sits under one umbrella plan number to allow all the employees to get access to a common list of funds at a negotiated management fee rate.

In such a scheme you don't (traditionally) call the employee contributions "AVCs" as they are not an additional pot of money or separate set of benefits bought on top of the core ones. They are just plain and simple extra employee contributions and sit in the he exact same pot as the 'normal' employee and employer contributions which arrive each month.

From force of habit and because employees don't often know the difference between workplace pensions, occupational pensions, group personal pensions and the like, some people will talk to their colleagues about having "increased their AVCs" when they do not have an AVC system at all but have simply added to their personal contributions in a group personal pension or private pension. But generally the AVC concept is a legacy of old-fashioned DB pensions and occupational schemes the likes of which are not generally offered by firms in the private sector today. So greenglide and bigadaj are assuming the OPs firm doesn't have them.

aroominyork wrote: »

Why not? The OP wants to encourage/offer people a way to save at no cost to the firm. If the employees are not already in a pension scheme they should start there and not with an ISA. If they are in the pension scheme, surely an AVC is the best way to save more if they are to do it through the firm.

OP had explained that they are specifically talking about putting money in investments which are not going to be locked up to personal pension age (ie "get some gains this year") so an AVC or additional employee top-up to their existing workplace pension isn't suitable for that purpose.

The problem the OP has is:
1)
Money deducted from payroll for personal investment can't be done on a salary sacrifice basis because it is not covered by an exemption from the govt's last crackdown on salary sacrifice (only things the govt wanted to encourage were allowed to remain, such as pension contributions and cycle to work etc, within limits) so it's not really more efficient than employees just going out and opening their own ISA - it just means the employer rather than the employee arranges the direct debit

2) liability issues when the investments performed unsuitably poorly for the investor

Really, based on the simplistic questions asked by the OP - no disrespect intended - they don't seem to have a hope in hell of getting an employee investment scheme off the ground. He and his colleagues don't work for an investment firm and are not qualified to advise on investments, and if they are a straightforward business to business credit firm (invoice finance) are unlikely to have FCA permissions for arranging (bringing about) deals in investments; dealing in investments; arranging, safeguarding and administration of assets; establishing, operating or winding up a collective investment scheme; managing investments, etc etc.

To get the permissions and become regulated as an investment manager/ investment advisor seems way overkill if they are not even planning on putting in company cash to do it and the employee-investors don't get anything out of it as a "benefit", just the admin convenience of not having to open up their own S&S ISA. It would be laughable to try to take on the risk of offering investment opportunities to employees, without the company getting the benefits of the staff loyalty which stems from staff actually getting 'real' benefits from you. Management effort would be *much* better deployed on the company's core business product, providing profits with which to incentivise staff.

If getting FCA permissions for provision of investment services sounds like it might be biting off more than you can chew, wait until you try to find or build a product that ensures that investors get at least their capital back across all economic conditions yet still offers good prospective returns. Multi-billion pound investment firms have been trying that for years. Basically, the plan is doomed if you are thinking of offering your own bespoke products or even offering any guidance that could be construed as offering advice on investment selection.

So, unless you are going to buy in professional advice from an IFA and pay for that for your employees (contracting independently with the adviser and not with your firm) you're probably going to only be able to offer "take it as you find it, no advice offered" workplace ISAs or similar.

With no employer contribution it is a hard sell to spin that as a real valuable benefit with the prevalence of cheap DIY options in the marketplace, and if you are spinning it as a good 'benefit' for your propaganda to employees, you could imagine someone thinking it was unfair that they could not participate in that good company 'benefit' because they already had a current year S&S ISA with some nominal amount of money that they'd set up themselves.

The only places I've seen non-pension workplace investments work well are things like:

- listed company sharesave or other scheme for investing in employer company's own shares;

- investment manager offering the perk of participation in its own private investment products to staff who qualify as sophisticated investors under FCA rules;

- employee benefit trust owning shares in third party funds but funded by the company so that the employee can't actually lose their own money (effectively just a bonus from the company to the individual which can be done with a future vesting date)

Apodemus

I can understand the heavy dose of cold water poured on this idea by nearly everyone, but perhaps the OP has a point.

As an employee, I get subjected to a barrage of publicity from my employer to take out various schemes where I buy goods I don't necessarily need on salary sacrifice or other beneficial terms. For some employees these schemes will be very tempting and may contribute to their poor financial health. Is it so very wrong for a company to want to help their employees by offering some form of savings/investment scheme?

I agree that any employee could probably do as well (or better) by DIY methods, but we surely all recognise that the majority of the population simply don't have the knowledge to do this?

I might not join the scheme, but I would applaud my employer if they started a scheme that helped employees save for the future rather than simply trying to reduce employer's NI and pension costs by getting their employees to buy "stuff" that they don't need.

aroominyork

bowlhead99 wrote: »

From force of habit and because employees don't often know the difference between workplace pensions, occupational pensions, group personal pensions and the like, some people will talk to their colleagues about having "increased their AVCs" when they do not have an AVC system at all but have simply added to their personal contributions in a group personal pension or private pension.

Thanks - I'm happy to stand corrected. I've seen salary software that produces reports with an AVC column for additional employee contributions to DC schemes and this site (my employer's provider) also perpetuates the use of the term: "Additional Voluntary Contributions are extra pension contributions that you can make to boost your pension savings... Your AVCs could be invested in one of TPT Retirement Solutions' defined contribution (DC) funds."

bowlhead99

aroominyork wrote: »

Thanks - I'm happy to stand corrected. I've seen salary software that produces reports with an AVC column for additional employee contributions to DC schemes and this site (my employer's provider) also perpetuates the use of the term: "Additional Voluntary Contributions are extra pension contributions that you can make to boost your pension savings... Your AVCs could be invested in one of TPT Retirement Solutions' defined contribution (DC) funds."

Like I said, AVC is terminology used in the context of additional non-mandatory contributions to an occupational pension scheme - and your workplace pension (SHPS DC) happens to an occupational scheme run by a pension trustee for your employer and it is also DC.

So, they use the same terminology for extra voluntary contributions by the employee to that occupational scheme as they do to the older SH occupational scheme (SHPS DB). The DB one goes back multiple decades, while the DC one only started in the last few years.

But generally the AVC terminology is only going to be in scheme literature for occupational schemes (because in group personal pension schemes where the contract is facilitated by the employer with a provider like Scottish Widows or Standard Life or Aegon or whomever, they are simply called 'contributions') ; and within the gamut of occupational schemes there were historically lots more DB active, deferred and pensioner members than there were DC. So, the phrase is more heavily associated with DB. The mix is changing a little now as with DC auto-enrollment there has been a spike in industry 'master trust' type setups alongside things like Nest; but a lot of new DC arrangements will be GPP basis rather than 'occupational'.

Not that any of that helps OP of course...

jimjames

Apodemus wrote: »

Is it so very wrong for a company to want to help their employees by offering some form of savings/investment scheme?

In the sense of encouraging savings and investment I agree it's not wrong in concept, the reality is that unless the employer has IFA consultations with all staff who want to sign up it's going to be hard to ensure that it's a suitable option for them. There isn't the same compliance risk with buying a new fridge at a discount but someone investing who has no cash savings might be poorly served if it was encouraged by their employer.

Apodemus

jimjames wrote: »

There isn't the same compliance risk with buying a new fridge at a discount but someone investing who has no cash savings might be poorly served if it was encouraged by their employer.

Agreed, but some employees who take up the option of a new car on a "no deposit, no running costs" basis could have their financial health compromised to a much greater degree than someone who simply puts a few pounds away into a poorly thought-out investment scheme.

sheramber

If my employer offered such a scheme I would want some answers.

Who decides on what the money will be invested in? What experience do they have of investing?

What will any costs be?

Would the employee be able to withdraw the money when he wanted? He may need that money before your set time for paying a share of profits.

What if an employee leaves- does he get his money and a share of any profits to date?

Similarly, if an employee dies what is paid out to his estate?

What guarantee would be given as to how protected the money is if say the company was sold or went bust.

Are you thinking in terms of setting up an Investment Club?