By David Walker Companies relying on share and option plans to provide workers' retirement funds,...
By David Walker
Companies relying on share and option plans to provide workers' retirement funds, rather than properly implemented pension plans, may do so to their employees' detriment, according to a leading employee benefits expert.
Michael Prior, head of employee benefits at Morgan Cole, said providing share option plans instead of pensions in a benefits package would tie workers' wealth to one share price.
Technology business AOL recently announced it had removed its pension plan, but left its share scheme in place.
"Option schemes are clearly part of the remuneration strategy in the 21st century," Prior said. "But asking employees to depend on the fortunes of one company not just for their incentives but also for their retirement planning is another step altogether."
David Hanratty from Nelson Money Managers said that as well as the portfolio risk having a large weighting of one company's shares, granting share options to employees could also incur tax-planning problems. Lump sums from pensions come tax-free, whereas capital gains from exercising options for shares can incur hefty tax bills.
Investors can minimise such CGT by using their annual £7,200 CGT allowance, and put £7,000 of company shares into a self-select Isa within 90 days of receiving them.