Sharesave or pension

TheBanker

I think there are really two considerations when joining Sharesave:
1) Is it a good savings vehicle for 3 or 5 years?
2) At the end should you keep the shares

These are distinct questions.

In my view Sharesave is a good savings vehicle if you're reasonably confident the share price will rise during the plan. My employer sets the option price at 20% below the current share price, so there's a high likelihood of making a profit (which is tax free). If you don't make a profit, you can simply withdraw the savings, so the opportunity cost is the return you could have made by saving/investing elsewhere.

In my view it is not a good idea to keep the shares, as you end up with your investments concentrated in a single company which goes against general investment advice. I think some people are tempted to keep the shares because they bought them cheaply. However it makes more sense (to me) to sell them immediately, lock in any profit, and invest the proceeds in a more diversified option such as a global tracker fund. This assumes the money is still to be invested rather than being earmarked for specific spending. 

By the way, working in banking I know an awful lot of people who invested in their employer's shares through Sharesaves and Partnership Shares, and made a lot of money. Unfortunately they stayed invested instead of diversifying. Then 2008 happened. I remember one guy who worked for HBOS in a call centre. He had thousands of pounds invested in HBOS shares, which ended up being almost worthless. 

housebuyer143

TheBanker said:

I think there are really two considerations when joining Sharesave:
1) Is it a good savings vehicle for 3 or 5 years?
2) At the end should you keep the shares

These are distinct questions.

In my view Sharesave is a good savings vehicle if you're reasonably confident the share price will rise during the plan. My employer sets the option price at 20% below the current share price, so there's a high likelihood of making a profit (which is tax free). If you don't make a profit, you can simply withdraw the savings, so the opportunity cost is the return you could have made by saving/investing elsewhere.

In my view it is not a good idea to keep the shares, as you end up with your investments concentrated in a single company which goes against general investment advice. I think some people are tempted to keep the shares because they bought them cheaply. However it makes more sense (to me) to sell them immediately, lock in any profit, and invest the proceeds in a more diversified option such as a global tracker fund. This assumes the money is still to be invested rather than being earmarked for specific spending. 

By the way, working in banking I know an awful lot of people who invested in their employer's shares through Sharesaves and Partnership Shares, and made a lot of money. Unfortunately they stayed invested instead of diversifying. Then 2008 happened. I remember one guy who worked for HBOS in a call centre. He had thousands of pounds invested in HBOS shares, which ended up being almost worthless. 

I don't believe profit from the share save is tax free. They are liable for capital gains. 

TheBanker

housebuyer143 said:

TheBanker said:

I think there are really two considerations when joining Sharesave:
1) Is it a good savings vehicle for 3 or 5 years?
2) At the end should you keep the shares

These are distinct questions.

In my view Sharesave is a good savings vehicle if you're reasonably confident the share price will rise during the plan. My employer sets the option price at 20% below the current share price, so there's a high likelihood of making a profit (which is tax free). If you don't make a profit, you can simply withdraw the savings, so the opportunity cost is the return you could have made by saving/investing elsewhere.

In my view it is not a good idea to keep the shares, as you end up with your investments concentrated in a single company which goes against general investment advice. I think some people are tempted to keep the shares because they bought them cheaply. However it makes more sense (to me) to sell them immediately, lock in any profit, and invest the proceeds in a more diversified option such as a global tracker fund. This assumes the money is still to be invested rather than being earmarked for specific spending. 

By the way, working in banking I know an awful lot of people who invested in their employer's shares through Sharesaves and Partnership Shares, and made a lot of money. Unfortunately they stayed invested instead of diversifying. Then 2008 happened. I remember one guy who worked for HBOS in a call centre. He had thousands of pounds invested in HBOS shares, which ended up being almost worthless. 

I don't believe profit from the share save is tax free. They are liable for capital gains. 

You are correct, although for many it will be within their CGT allowance (although less so in future as the CGT allowances reduce). You can avoid CGT by transferring the shares to an ISA, provided you have sufficient allowance. You could then sell them within the ISA and invest in something else, or withdraw the money. But yes, I was wrong to say 'tax free' so thank you for the correction. 

areader

TheBanker said:

You are correct, although for many it will be within their CGT allowance (although less so in future as the CGT allowances reduce). You can avoid CGT by transferring the shares to an ISA, provided you have sufficient allowance. You could then sell them within the ISA and invest in something else, or withdraw the money. But yes, I was wrong to say 'tax free' so thank you for the correction. 

"Transferring the shares to an ISA", while this is allowed within 90 days of excise, it could be that this is not something that is supported by the Sharesave scheme administrator, and after having a look myself it is not very easy to find a platform that supports this after an out of ISA share transfer away from the SAYE administrator. 

Computershare holds my SAYE in a LSE listed company. I'd be interested to hear if anyone knows of specifics of how it might be possible to transfer LSE traded SAYE shares managed by Computershare into an ISA.