Number of companies offering Save As You Earn schemes for ordinary workers plunges

Publications that covered this story include City AM, and the Financial Times and Daily Telegraph online, 26 November.

The number of UK companies offering ordinary employees Save As You Earn share option schemes has plummeted 15% in one year, according to our research.

Save As You Earn (SAYE) schemes allow employees to invest in the company they work for, at a discounted price. Deputy Prime Minister Nick Clegg has called repeatedly for increased employee share ownership.

Just 510 companies offered SAYE schemes to their employees in 2010-11 (year end 31 March, latest available data), down from 600 companies in 2009-10, and less than half the 1,110 companies that offered schemes in 2000-01.

SAYE schemes have withered thanks to corporate cost-cutting and the removal of key incentives for employees to use the scheme by HMRC.

Roy Maugham, Tax Partner, London office, says: “The Government is supposed to be encouraging employee ownership, but these figures show one of the key avenues to employee ownership is rapidly withering.”

“SAYE schemes have historically been one of the best ways to encourage employees to invest in their employer. They can make investments both cheap and financially rewarding.”

Roy adds: “However, the costs of administering such a popular scheme have become too much for many businesses to justify, while HMRC has removed almost all the incentives for employees to use the scheme.”

SAYE schemes allow employees to build up monthly savings over three, five, or seven years, after which they can withdraw their cash – with interest – or use it to buy shares in the company for whom they work. The price of the shares is set in advance, with a discount of 20% off the current share price.

HMRC has now set all interest rates for investments in SAYE schemes to 0%, which means the value of cash in SAYE savings accounts will lose value as a result of inflation. Five years ago, the interest rate for a three-year SAYE scheme was 4.23%.

“The Government has been vocal about its desire to increase employee ownership of businesses, but HMRC’s approach to SAYE schemes means the government is shooting itself in the foot.” says Roy.

“These schemes are now too expensive for employers and not attractive enough for employees; 0% interest rates mean employees lose a lot of their investment through inflation if share prices fall below the price they’ve agreed to pay for them.”

He adds: “The Government should take steps to rectify this. Demand for SAYE schemes could be boosted if interest rates and the cap on monthly savings for employees were increased, or if the discount available on shares was increased to protect share purchases against large falls in share values.”

Employees are currently limited to investing up to just £250 per month in SAYE schemes, while interest rates are set by a formula.

Roy says: “Employees looking to invest in their business have been left out in the cold. Reforms are needed if the Government wants to refresh one of the easiest, most popular vehicles for employee ownership of businesses.”

Volatile stock market prevents employees from exercising options

The poor performance of the stock market has discouraged employees from exercising their share options, with many companies’ stocks now worth less than they were just a few years ago.

In 2010-11, just 130,000 employees exercised their SAYE share options compared to 170,000 in 2009-10; a fall of 24%. In 2006-7, before the financial crisis hit share values, 400,000 employees exercised their share options.

Roy says: “Employees are stuck between a rock and a hard place. HMRC has turned the money-back aspect of SAYE schemes into something that actually costs employees money, while the struggles of the stock market means exercising share options will mean weak returns.”

“Investing in their own company is now less attractive than ever for employees, and the Government needs to factor this in.”

Number of companies offering SAYE share options schemes