SAYE what you see

Beauracracy and politics aside, there are certain aspects of working for a large corporate organisation that can bring some benefits. SAYE schemes, may be one of them (ymmv). Let's get the basics out of the way.

What is SAYE?

SAYE is a savings related scheme, run by (often) larger, listed organisations that allows you to buy shares in the company at a fixed price.

So, how does SAYE work?

You invest up to £500 a month, over either 3 or 5 years, and in most cases the shares are offered at a discounted market rate (at the time the contract is initiated). There's also a bonus system, linked to 3 and 5 year swap rates (three year, 2.05% under three year market reference swap rate; five year, 1.75% under five year market reference swap rate). Given current low rates, this equates to zero bonus for now.

What are the pros and cons of SAYE

There are a couple of tax advantages of a SAYE scheme:

• interest and any bonus at the end of the scheme is tax-free
• thretheres no Income Tax or National Insurance liability on the difference between what you pay for the shares and what they’re worth

So, is it worth joining an SAYE scheme?

That depends on a number of factors:

• Do you think their is upside in the stock (hopefully, if you're working for them)
• Do you think the discount level gives you a good chance of increased upside
• Can you afford to save the amount your thinking about for 3-5 years consistently (you can exit early, but you just get your investment back). I personally, find this much easier if the money is taken directly from salary - once it's behind the debit card, it's fair game for spending.

If after thinking about those things, you feel like there's money to be made here, do a quick calculation. Investing that same amount, through a more traditional stock or fund approach, with a reasonable return and little compounding, might yield better results.

So, what did we do?

My current employer offers a SAYE scheme, and early in my tenure I ran the numbers, and thought there was good upside to be had. So much so, I signed up to the maximum amount (at the time £250) over the longest period (5 years), which gave me a 20% discount on the trading price. That meant I'd be setting aside $pound;15k to purchase 2516 shares at 596p per share.

Luckily (or more likely through a combination of my incredible insight and undoubted contribution to the company's success) the shares have done pretty well. At maturity (3 months ago now, they were sitting at around 1700p - which would have realised a gain of £27,772, or around 185%.

Now I espouse the benefits of compounding, but it would have to have been some pretty special inevsting to beat or match those numbers.

Unfortunately, I was a little slow off the mark, and missed the £17 peak, taking the options this week to realise an overall profit of £26k (173% - disastrous by comparison, I'm sure you'll agree).

And would we do it again?

Well, we did actually. When the ogvernment increased the maximum limit of what you could put into a SAYE scheme, we took out a shorter, 3 year plan. The company stock had risen a little by that point, so the dicounted rate was 780p, but still this realised just under 100% profit over the lifetime of the scheme.

When the 3-year scheme closed out, we decided that there wasn't a huge amount more upside in the stock, and our money would be served better elsewhere, so it's now funneled into alternative investments (we'll detail these in a later post). All in though, a combination of a little forethought and a good dollop of luck brought in over £35k of profit over a 5-year period. If only all our hair-brained schemes could be that successful...