Deducting and then investing money for employees

gingercordial

Back in the dim and distant past I was employed (by an accounting firm in fact) that offered a way of automatically paying a set regular amount from our salaries into a savings account each month. I came across some old payslips recently that showed the deduction.

There was no tax/NI incentive as it came out of our net pay. I think it was a bog-standard instant access Halifax savings account, not an ISA or anything more fancy than that. There was definitely no element of being able to buy shares then or later (it was a partnership in any case). The money was not locked up and if I recall correctly the deductions could be stopped at any time. The only service provided by my employer was in giving us the forms and administering the monthly hand-over of money. It was purely to encourage us into the habit of saving, not to earn any real investment gains - though we are talking about well over a decade ago so the interest rates were better back then.

It might be an option if the OP also wants to encourage savings behaviour - if this kind of thing still exists - but it will certainly not result in any windfall gains for the employees.

waveneygnome

The thing that bothers me the most is the presumption that employees 'may like to take some gains this year'.

True, some markets have had a great run, but there is no guarantee that this will continue.

I think the tone of the OP indicates that they EXPECT gains.......this is not a sound starting point to offer a product/service to employees.

bowlhead99

waveneygnome wrote: »

The thing that bothers me the most is the presumption that employees 'may like to take some gains this year'.

True, some markets have had a great run, but there is no guarantee that this will continue.

I don't think that's something to be bothered by - presumably "this year" is just the OP's shorthand for the message he was looking to convey to us when explaining what they want - i.e. the fact that his staff making extra investments over and above their pension would like to be able to access capital and gains/ proceeds somewhat sooner than the age 55+ at which they can access their pension contributions and returns thereon.

In other words, just saying it to put the question about "why not just do more pension it's more efficient" to bed.

I think the tone of the OP indicates that they EXPECT gains.......this is not a sound starting point to offer a product/service to employees.

Not really, he acknowledges that investments can generally lose money in his opening post when he asks whether the sort of scheme he might implement would have to offer a guarantee of at least getting back their respective sums. If they did that, they could at least tell employees that they would gain or break-even.

As mentioned though, he is on a hiding to nothing. While an investment that couldn't lose anything might be attractive to some employees, you can only get it by spending some of the invested money on buying insurances and guarantees and low risk assets which will lower potential returns (which won't be what some investors want), and may overall still end up with a return worse than cash. Constructing such a product yourself while you're not an investment professional is crazy, when you could just get one off the shelf as a packaged "structured product" which comes with all kinds of risk warnings.

But the problem is that advising on any investment, let alone a complex investment like that, is a regulated area, so if you didn't employ an IFA or suitable intermediary to speak to employees about taking up the opportunity, you could get into a mess. And ultimately a structured product is not best for all and sundry - it's a niche -so employees would expect to be offered a whole range of things as alternatives which then makes it more complicated again, with still no guarantee of take-up.

As I suggested earlier, it could be a more workable proposition if the employer was putting their own cash in to create the return for the investors without it costing anything to the employee. Then the employer could select the investment risk and just have someone run it as an employee benefit trust, and if it pays out a high value then great - a bigger bonus for employees - and if the payout is small instead, the employee didn't really lose out because it was all bonus anyway.

But once you start getting into employees putting in their hard earned net salaries, with no free money from the employer, peer pressure from workmates to sign up, and no better product than they could get direct from any number of DIY investment platforms - then it's just a headache in the making without a real payoff.

Alexland

Creating an opt in scheme that is no better than those available in the market seems pretty pointless to me. In contrast employer pensions work because of the employer contribution and tax/NI savings.

In terms of AVCs (pre auto enrollment) some companies have a minimum DC contribution to join the scheme (in my company it was 3%) and anything above that was considered an AVC. So a 2% AVC would result in a total 5% employee contribution.

armchaireconomist

Unless the employer is planning to offer to match contributions, or guarantee that the employee will get their money back + inflation (in the event stocks take a nose dive) and offer it on a salary sacrifice basis, I really don't see the point.

aberlyfid_2000

try hargreaves landsdowne and they should be able to give some guidance on this as they offer employer services.


really would strongly advise against being responsible for the investment decisions. markets do occasionaly experience gravity and you better leave the investing to the proffessionals !

aberlyfid_2000

bowlhead99 wrote: »

Not really, he acknowledges that investments can generally lose money in his opening post when he asks whether the sort of scheme he might implement would have to offer a guarantee of at least getting back their respective sums. If they did that, they could at least tell employees that they would gain or break-even.

this would be possible if the company undertakes to underwrite the potential losses in the contributions and would be considered a taxable benefit.

Sarastro

As an owner of a small business, I would think this very difficult to administer and what benefit would you get out of it? There are also going to be tax implications to manage.
As an employee who's worked for various companies, I wouldn't be interested in it - why would my employer be better at investing my money than I am?? Would it be more tax efficient?
I also think you are risking the relationship with the employees - what happens if the value of investments falls? It would be difficult to imagine a scenario where they lose the money and it doesn't affect their behaviour at work, or their respect for you as an employer.
If you want to do something, I'd go for improving the pension scheme - AVC's as discussed. IF, as an employer, you think you can invest the money more effectively than the pension provider, then manage your own pension scheme.