I’ve paid into a Sharesave plan for the full savings term – now what?

Graham Bull explains what options employees have when they reach the end of their share plan term.

Sharesave plans, also known as Save As You Earn or SAYE, are a great way for employees to save and, possibly, take their first steps into the world of investment by providing an easy way for them to buy and hold shares.

If the plan is offered by your employer, you contribute between £5 and £500 a month over a fixed three- or five-year period.

You can then choose whether to buy your company’s shares at a price fixed when you started saving, known as the “option price” or “exercise price”.

The plans combine the potential for great returns along with the security that savers won’t lose money even if the share price falls over the savings term.

On average, savers almost doubled their money (up 70%) in the five-year schemes that we managed to maturity last year.

The key decision point for employees comes when their plan matures at the end of the savings period. This is when savers receive information from their employer along with key dates and instructions on what to do next. It’s important to understand what’s on offer and the timescales for action.

The first thing to work out is whether using those savings to buy shares at the option price is a good idea given the following potential outcomes.  

Scenario 1: share price exceeds the option price

Your company’s share price rises over the savings term (leading to the current share price, for example, £3 per share, being higher than your plan’s option price, for example, £2 per share).

In this scenario, participants usually use their accumulated savings to buy their company’s shares valued at £3 at the option price of £2 (providing a gain of £1 per share).

Scenario 2: share price falls well below the option price

Your company’s share price drops over the savings term (leading to the current share price, for example, £1 per share, being lower than your plan’s option price, for example, £2 per share).

In this scenario, you probably wouldn’t buy the company’s shares at the option price as they would cost you more than buying them on the stockmarket. Instead, employees reclaim their savings in full.

Some companies provide additional information about how to buy shares through the market, along with a low-cost dealing service so that employees can choose to use their savings to buy shares at the prevailing market price.

Too close to call

However, there’s an uncertain area when the option price is very close to the company’s share price. For example, if the share price is between £1.95 and £2.05 and the option price is £2 per share.

That’s where the six-month purchase period comes into play, allowing savers to defer making a decision to see what happens with the share price. 

Where there is only a modest share price increase, additional factors will influence whether you would buy the shares at the option price. These include whether you want to keep those shares or sell them immediately; the cost of selling shares; and when the next share dividend is being paid.

Regardless of share price performance, savers will have accumulated a sizeable pot of money and have a decision to make on whether to use those savings to buy shares - either at the option price (scenario 1) or at the market price (scenario 2).

Where shares are bought at the discounted option price and sold immediately, meaningful gains can be made with very low risk.

If done right, Sharesave is a great, low-risk way to own shares in a company, as you benefit from being both an employee and a shareholder, with income from dividends and gains from any share price increase.

Graham Bull is head of employee shareplans at Equiniti.

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