Marriage of share schemes and SIPPS needs to be handled with care

From Corporate Adviser
Philip Smith, Director of Financial Planning

A recent Buck Consultants survey found that 72% of Baby Boomers were either anxious or extremely anxious about life after work – and it is not hard to see why. The demise of Defined Benefit pensions continues, and the traditional Defined Contribution (DC) replacement has largely failed to deliver. For increasing numbers of employees it’s all about new ’contract’ of shared responsibility with their employer.

This recognises that not all employees will have the money or desire to save into traditional retirement vehicles from an early age, and that for the modern employer the ability to blend the boundaries between a corporate ISA, SAYE and pension could become a powerful tool in helping their employees build long-term wealth.

For younger and lower paid employees, SAYE, with its modest starting point and the ability to access funds after 3 or 5 years, represents an attractive way of saving that gives flexibility and can help align the interests of the employer and employee.

Certain commentators have commented on the risk of employees holding too much of their retirement wealth in their employer’s shares, but from a UK perspective, we are a long-way from the example of Enron in the U.S.

For more senior employees, group SIPPs have become the favoured vehicle to allow them to ‘roll-over’ any gains in share schemes in the most tax efficient way as possible. Many SIPP providers will facilitate the physical transfer of share holdings into the SIPP allowing the executive to maintain their shareholding and minimise any out of market risk.

The ability to roll shares into a SIPP or to use SAYE alongside pension as a savings tool brings added flexibility to a marketplace that is looking for new solutions.

Unless contractual conditions require the employee to hold a certain level of shares, share scheme roll-over into SIPP brings tax efficiency with the ability to diversify into other shares, asset classes and collective investments once the transfer has been made. Who knows, they might actually want to continue to own their company’s shares!