97/01
16 August 2001
CHANGE TO WAY BONUS RATES FOR SAYE SHARESAVE SCHEME IS SET
The Treasury today announced changes in the bonus rates for the Save As You Earn (SAYE) Sharesave scheme that will bring the rates into line with other interest rates. At the same time, it is introducing a new mechanism to ensure that in future bonus rates automatically adjust to interest rate changes.
The bonus rates were last changed in October 1998 and are now significantly out of line with other interest rates. The new automatic mechanism will reset the bonus rates on an annual basis with the new rates taking effect from 1 October this year and then on 1 September every year thereafter.
The new bonus rates on 1 October 2001 will be:
|
Contract type |
Bonus Rate |
Effective interest rate |
|
3 year |
2 x monthly payments |
3.67% |
|
5 year |
6.2 x monthly payments |
3.99% |
|
7 year |
11.9 x monthly payments |
4.07% |
The current bonus rates (set on 1 October 1998) are:
|
Contract type |
Bonus Rate |
Effective interest rate |
|
3 year |
2.75 monthly payments |
4.83% |
|
5 year |
7.5 x monthly payments |
4.65% |
|
7 year |
13.5 x monthly payments |
4.52% |
Employees who sign up to SAYE will receive the bonus rate for the relevant contract that was in force at the time they joined the scheme. They will therefore not be affected by any future bonus rate changes arising from the new adjustment mechanism.
Existing employees who signed up to SAYE before implementation of the new mechanism will continue to receive the bonus rates in force when they joined the scheme.
Early leaver rate
The interest rate for people who leave the SAYE scheme after a year but before their saving contract comes to an end will be reduced from 3% to 2%. This will only apply to investors who join the SAYE scheme from 1 October this year.
NOTES TO EDITORS
1. SAYE is one of a number of Government initiatives promoting wider employee share ownership. Nearly 1200 companies offer SAYE to their employees and currently about 1.75 million employees participate in the scheme.
2. SAYE is a savings vehicle for employees of companies which operate savings related share option schemes that are Inland Revenue approved to a model set by the Treasury.
3. The company offers its employees the option to buy at a future date shares in the company. The option may be granted at a discount of up to 20% off the current share price.
4. The employee then saves between £5 and £250 per month out of taxed pay on a 3, 5, or 7 years savings contract. When the contract matures, a tax-free bonus is received. The proceeds are used to buy the shares if the employee so wishes.
5. The bonuses are equivalent to fixed rate interest and are set by the Treasury. No income tax or National Insurance Contributions are incurred on the granting or exercising of options. Employees who do not exercise the option can take the proceeds of the savings contract with the cash bonus.
6. SAYE schemes are operated for companies by banks, building societies, or European Authorised Institutions which must first be authorised by the Treasury to operate SAYE.
7. October 1998 series applications will not be accepted by the SAYE administrator if received after 15 October 2001. The first payment on a valid October 1998 series contract will still be accepted provided it is made by 16 January 2002.
Automatic mechanism
8. The bonus rates for the 3, 5, and 7-year SAYE contracts will be adjusted automatically on an annual basis by linking them to 3, 5, and 7-year market swap rates (the market reference swap rates).
9. The bonus rates are to be adjusted to maintain the following gaps in basis points (bp) under the market reference swap rates:
|
Contract type |
Basis point margin under market swap rate |
|
3 year |
205bp under 3 year market reference swap rate |
|
5 year |
175bp under 5 year market reference swap rate |
|
7 year |
165bp under 7 year market reference swap rate |
10. The market reference swap rate for the relevant 3, 5, or 7-year SAYE contract is to be the average over the last 10 working days of July for the new bonus rates on 1 October this year, and over the last 10 working days of June for the new bonus rates on 1 September every year thereafter.
11. The mechanism will allow for bonus rates to be adjusted during the twelve-month period if the market reference swap rates decline or rise dramatically. This adjustment will be triggered if the 3 or 5-year market swap rates (measured as an average over a rolling 30 day period), is greater than or equal to 125bp below or above their reference levels at the start of the 12-month period (or any adjusted level which may be in force).
12. If this trigger condition is met, the bonus rates are reset to maintain the 205bp, 175bp, and 165bp gaps under the new reference swap rate as appropriate, which is the average swap rate over the last 10 working days of the 30 day period. The bonus rates will then generally apply until the annual reset.
13. For more information about employee share schemes, including SAYE, visit the Inland Revenue website.
14. Media enquiries should be directed to Charlotte Carr, HM Treasury Press Office on 020 7270 5185.