Employee Share Schemes and Self Invested Personal Pensions ‘SIPPS’.

Do you already own or have you been offered shares in your employer?  If so have you thought about the potential benefits of holding them in a SIPP?

Owning shares in your employer company could turn out to be a great investment although, like every investment, there are risks and no guarantees that it will turn out that way.

As well as the inherent investment risk, owning shares in your employer carries other disadvantages, for example:

1. The minimum investment required could be significant – With many calls on personal finances, finding a capital sum to invest in the first place may not be possible for many employees.
2. Unless the company is listed, it should be assumed that the shares are illiquid and sale could typically depend on:
   1. Share transfer restrictions imposed by the company constitution or terms of the employee share scheme
   2. Finding another employee or other permitted investor willing to purchase the shares
   3. An exit event such as the sale of the whole business
   4. Existence of a share buy-back scheme

How could a SIPP help?

Provided that the investment in employer shares forms only part of an individual’s pension saving, lack of liquidity may not be an issue.  Pension planning is intrinsically a long term exercise, with funds locked away until at least age 55 and many savers likely to limit withdrawals and maintain their pension savings well beyond that.  So the fact that an asset may remain illiquid for many years might not necessarily be an issue where it is held in a pension scheme.

Using pension funds already accumulated also leaves personal capital free for other purposes and, for some, may be a more appropriate way to buy into their employer.

A pension fund can not only be used to make an initial purchase of shares, but can be used to buy shares that are already held personally by the member.  Where the shares are already held personally, a SIPP operator should require that the acquisition takes place at open market value; however, the transaction will have the effect of releasing capital from an illiquid asset back to the member for them to use as they wish whilst retaining control of the asset via the SIPP.  Once in the SIPP, any future growth in the share value will be tax-exempt.

In conclusion, holding shares in your employer via a SIPP can be beneficial in a number of ways however the terms of employee share schemes, and individuals’ personal circumstances, vary and we recommend taking financial and legal advice before committing to a transaction.

For more information on holding shares in your employer via a SIPP please contact our sales team.