IT is a great way to save, and profitable too, especially if you work for a firm performing well on the FTSE 100.
More than 2.3 million employees in listed companies use Sharesave, putting in £5 to £250 a month over three or five years. Companies discount the option price at which a share can be bought by up to 20 per cent.
It has proved a money-spinner for many, even in rocky stock markets.
More than 200,000 Asda workers, for instance, have cashed in on Sharesave since 1999. Earlier this month, more than 16,000 of them received a £43m bonus when their scheme matured after shares of parent company Wal-Mart showed a 50 per cent rise since 2006 – and 95 per cent of them sold all their new shares immediately to get the cash windfall.
Asda staff who put the maximum £250 a month into the scheme received a bonus of more than £4,500 on £9,000 invested. About 25,000 Asda workers joined the next Sharesave scheme, from March this year, and 50,000 of a total of 165,000 Asda workers are in such a plan.
Last year, more than 2,400 bus and rail drivers with transport company Stagecoach cashed in, receiving about £6,300, meaning an average gain of more than £3,600 each.
Clearly, Sharesave encourages many workers on low incomes to make regular savings over several years.
The benefits are twofold: employees are introduced to share ownership at a guaranteed profit, because if the share price falls during the saving period, they can take their money, plus bonus, and walk away at the end with a lump sum.
Companies gain, because workers have an incentive to work efficiently to maximise profits.
Nearly all of us need to save more, which makes it harder to understand the decision of Revenue and Customs to cut the rate paid on cash in three-year Save As You Earn (Saye) schemes from 1.08 per cent to 0.54 per cent.
For early leavers who fail to complete the specified saving period, the rate is cut from 0.50 per cent to 0.36 per cent. For savers over five years, the rate falls to 1.42 per cent. These rates apply to new schemes, not those already in operation.
Roy Maugham, tax partner at accountancy company UHY Hacker Young, said that, by setting interest rates close to zero, employees who later decide not to exercise their options will receive almost no return on money they have locked away.
He said: “Revenue and Customs could not have done this at a worse time. The recession has forced many growing companies to freeze pay and recruitment, and some use Saye schemes to reward staff with the offer of a stake in the company instead.
“Revenue and Customs is now throwing cold water on these attempts to incentivise and reward the most promising employees.”
All interest and any bonus paid on the maturity of Sharesave schemes are tax-free, so the taxman might think his revised rate is not far out of line with, say, the 0.80 per cent currently paid as Premium Bond prizes and plenty of bank and building society account rates under one per cent.
However, it is probably more important than usual to keep interest rates on Saye schemes attractive, because the gloom surrounding UK shares will persuade many employees not to get involved, and to waste money that would be taken from their pay packet if they joined Sharesave.
The new 0.5 per cent interest rate will remain in place for the duration of the scheme, despite employees agreeing to lock savings away for three years and committing to pay a fixed amount of money into their account each month.
Mr Maugham said: “Rather than setting interest rates in line with the Bank of England, perhaps Revenue and Customs should be aligning the rate paid on Saye accounts to those available on gilts.
“Many high street accounts requiring savers to lock their money away for just two years offer rates of four per cent plus, so there is no reason why Revenue and Customs cannot offer Saye account-holders a similar rate.”
Andrew Hagger, from finance website Moneynet.co.uk, believes that Sharesave will not be tempting at these rates, unless you work for a company where you can predict that the share price is going to rise strongly.
He said: “You will get a better return from some instant access accounts, without being locked in for years.”
Most politicians have come around to the idea that we all need to save a bit more. But perhaps Sharesave is another illustration of the huge gap between fine words and effective action.
Comments: Our rules
We want our comments to be a lively and valuable part of our community - a place where readers can debate and engage with the most important local issues. The ability to comment on our stories is a privilege, not a right, however, and that privilege may be withdrawn if it is abused or misused.
Please report any comments that break our rules.
Read the rules here