1 September 2003
CHANGE IN BONUS RATES FOR SAYE SHARESAVE SCHEME
The Government today announced changes in the bonus rates for the Save As You Earn (SAYE) Sharesave scheme that will maintain them in line with other interest rates.
SAYE is one of a number of Government initiatives promoting wider employee share ownership.
The bonus rates were last changed on 27 April 2003.
The new bonus rates on 1 September 2003 will be:
| Contract Type | Bonus Rate (Previous rates in brackets) |
Effective interest rate (Previous rates in brackets) |
| 3 year | 0.9 x monthly payments (1.0) |
1.61% (1.74)% |
| 5 year | 3.4 x monthly payments (3.7) |
2.17% (2.34) |
| 7 year | 7.1x monthly payments (7.6) |
2.48% (2.64) |
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 not be affected by future bonus rate changes.
Additionally, the Early Leaver Rate for those who withdraw their funds after 12 monthly contributions but before the three year anniversary has also been adjusted, as follows:
| Early Leaver Rate | Pre-1 September, 2003 2.00% |
From 1 September 2003 1.00% |
Note to editors
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.
The company offers its employees the option to buy shares in the company at a future date. The option may be granted at a discount of up to 20% of the current share price.
The employee then saves between £5 and £250 per month out of taxed pay on a 3 or 5 years saving contract. The 7 year “contract” is actually a 5 year contract where the employee leaves the contributions in for a further 2 years. When the contract matures, a tax free bonus is received. The employee can then choose either to exercise the option to buy the shares with the proceeds from the savings contract (there is no obligation to purchase), or just to take the proceeds and the bonus.
The bonuses are equivalent to fixed rate interest and are set by HMT. No income tax or National Insurance Contributions are incurred on the granting or exercising – there can be an IT charge on exercise if this occurs within 3 years of grant in circumstances other than redundancy, retirement, injury, disability or death - of options.
SAYE schemes are operated for companies by banks, building societies, or European Authorised Institutions which must first be authorised by the Treasury to operate.
Automatic mechanism
The bonus rates for 3, 5 and 7 year SAYE contracts are adjusted automatically on an annual basis by linking them to 3, 5 and 7 year market swap rates (the market reference swap rates).
The bonus rates are 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 |
The market reference swap rate for the relevant 3, 5 or 7 year SAYE contract is the average over the last 10 working days of June for the new bonus rates which come into force on 1 September the same year.
The mechanism allows for bonus rates to be adjusted during the twelve month period if the market reference swap rates move dramatically. This adjustment is triggered if the 3 or 5 year swap rates (measured as an average over a rolling 30 day period), are 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).
If this trigger condition is met, the bonus rates are reset to maintain the 205bp, 175bp and the 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.
For more information about employee share schemes, including SAYE, visit the Inland Revenue website.
Or contact Richard Margrave at Proshare, on 020 7220 1742
Contact point in HM Treasury: Mike Noakes, tel no. 020 7270 4347, or Chris Murricane on 020 7270 4392.