In the same way that it makes investing sense to buy shares when they are cheap and sell them when they are expensive, it also is a good idea to put in a new share scheme when the share price may have been hit by Covid-19.
First of all, it shows that you have confidence in your company. Secondly, it provides a powerful incentive to rebuild the value of the company and thirdly it allows a company to put more shares in a tax efficient plan than would normally be the case.
Share schemes are one of those projects that people talk about but often don’t get around to because of pressing day to day concerns. For those people stuck at home with time to think, this may be the opportunity to rethink your incentive arrangements and reap rewards in the future.
For the first time in a generation the government has raised the share scheme limit as George Osborne made the dramatic move of doubling the maximum monthly amount one can save from £250 to £500.
He also increased the Share Incentive Plan limits on partnership and free shares as well as the matching element. This is the first rise since SIP was created by Gordon Brown over 13 years ago.
As I predicted in my last blog, the Government finally listened to the proponents of share schemes and much credit goes to bodies such as IFS/Proshare, ESOP centre and other bodies which have lobbied for this on a consistent basis.
HMRC figures show that the share scheme market has stagnated over the past five years as the value of the reliefs in real terms has been eroded by inflation. Whilst all political parties have publicly supported the principle of wider share ownership, it is to the credit of the coalition that they have acted to demonstrate their support.
The dramatic increase in relief available may prove to be a tipping point which makes the adoption of these share schemes the normal remuneration policy and that those that do not adopt them will be the exception. Coupled with the simplification measures in setting up share schemes I foresee a vast expansion in the number of employees participating.
Last night at the IFS/Proshare Annual Awards dinner David Gauke gave the clearest hint yet that the Government was considering raising the limits on approved plans.
The SAYE limit of £250 has been the same for over 20 years and the SIP limits have remained the same since plans started in 2001. If the Government does lift the thresholds, this could have a major effect on the popularity of share schemes on the UK. The raising of the limits would attract many more companies to put in tax approved plans which give higher net rewards to employees. Coupled with the simplification recommendations which the Office of Tax Simplification (OTS) proposed and the government implemented, this could make share plans the norm amongst British companies.
The Government is to be commended for maintaining tax advantaged share plans in a time of fiscal austerity when many countries in continental Europe were abolishing them. However to achieve greater share ownership amongst ordinary employees, the Government should seize the opportunity to increase the contributions that employees can make.