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, which will keep 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 1 September 2004.

The new bonus rates on 1 September 2005 will be:

Contract Type	Bonus Rate (Previous rates in brackets)	Effective interest rate (Previous rates in brackets)
3 year	1.4 x monthly payments (1.9)	2.49% (3.37)%
5 year	4.4 x monthly payments (6.1)	2.79% (3.82)%
7 year	8.4 x monthly payments (11.5)	2.91% (3.90)%

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.

The Early Leaver Rate - for those who withdraw their funds after 12 monthly contributions but before the three-year anniversary - has also been adjusted according to a standard formula linked to market rates as follows:

Early Leaver Rate

Pre-1 September, 2005
2.00%

From 1 September 2005
1.50%

Notes to editors

1. SAYE is a savings vehicle for employees of companies that operate savings related share option schemes. that are HM Revenue & Customs approved to a model set by HM Treasury.

2. Under the scheme, companies offer their 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.

3. The employee then saves between £5 and £250 per month out of taxed pay on a fixed term contract. 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.

4. The bonuses are equivalent to fixed rate interest and are set by HM Treasury. No income tax or National Insurance Contributions are normally incurred on the grant or exercise of options. However, there can be an income tax charge on exercise if this occurs within 3 years of grant in circumstances other than redundancy, retirement, injury, disability or death.

Automatic mechanism

5. 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).

6. 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

7. 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.

8. For more information about employee share schemes, including SAYE, visit the HM Revenue & Customs website at: www.hmrc.gov.uk/shareschemes

9. Media enquiries should be addressed to Will Straw at the Treasury press office on 020 7270 4420.

10. Non-media enquiries should be addressed to the Treasury Correspondence and Enquiry Unit on 020 7270 4558 or by e-mail to public.enquiries@hm-treasury.gov.uk.

11. This press release and other Treasury publications and information are available on the Treasury website. If you would like Treasury press releases to be sent to you automatically by e-mail you can subscribe to this service from the press release site on the website.