Long live workplace savings

Hands up if you own shares in the company you work for.

You are either

1.Excited and proud to be participating in the fortunes of your company, or…

2.Worried that you have too much of your wealth tied up in your primary source of income

I suspect that for most people it’s a bit of both.

The chances are, especially if you work for a company with “British” in its title,  that you’ve got a substantial amount of your wealth tied up in share save schemes of one sort or another.

There are two threats to the conversion of this paper wealth to cash in the bank

1. A fall in the value of the share price

2. Tax (and transaction charges) when you cash in your shares

Statistics suggest that most people hold the shares they have been granted form employment through to retirement. Do you?

Conventional wisdom suggests that relying on the performance of a single share is a bad thing. Diversification’s the name of the game:- which is why most people save through collective investment plans which spread  risk across a range of investments.

Conventional wisdom suggests that (unless you are about to cash in your shares) you should use the tax incentives available through pensions and ISAs to shield them from the taxman’s scythe.

Companies with substantial amounts of employee wealth invested in their own shares are worried. They are worried about the same things as you..

Worried from a paternalistic viewpoint about the risks to your wealth.

They are also worried that your morale (and productivity) will be aligned to the company’s share price- with an asymmetric risk (the company is blamed if things go wrong and receives little thanks if things go well!).

They are worried that when you come to need the cash- when you retire, the value of your shares will be diluted by tax and transactional charges.

Finally they are worried that you are expecting rather more from your  pension than you are likely to get (if it’s DC that is!). In other words they worry that they are going to have a lot of disgruntled pensioners unless they can better manage expectations.

The stats show that many employees will have more in these share plans than in their pensions when they come to retirement.

While companies agonise over the structure of their DC pension plans, they are also worrying about these share plans- for very good reason.

Look forward over the next few years to innovative structures from your company that allow you to pass shares you own into workplace pensions and ISAs with the option to exchange your shares for collective investments.

Look out for clever ways to minimise transactional costs through the use of “in-specie” transfers.

Look out for your company negotiating great deals with asset managers to get you cut price collective funds.

Look out too for the introduction of “clever technology” that gives you the option to see the value of your shares and your workplace savings schemes in a single glance. What are being called “employee portals”.

The future of workplace savings may just be getting a lot better.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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