Orange, the global commercial brand of France Telecom, is one of the first companies in the UK to put together two separate employee benefits packages to create a compelling pensions offer for its staff.
By putting the proceeds of a share save scheme into a pension, employees can, in theory, ‘double up’ two separate forms of tax relief.
The effects of this are very attractive – JP Morgan INVEST, a specialist in financial education for employers, says a 256% uplift is possible on an initial share purchase.
If the employer matches the shares that an employee buys and they rise in value, the resulting benefits look even more impressive. An initial outlay of £59 could be turned into a pension contribution of more than £300 five years later.
No wonder employers such as Orange are talking about setting up workplace or corporate self-invested personal pensions (SIPPs) to allow staff to maximise their benefits in this way.
SIPPs are seen as the natural pensions wrapper in the UK, as they can hold a wide range of investments, so company shares could be held as they are, or diversified into a wider range of investments.
Another approach would simply be to allow staff to put their shares into an existing occupational scheme, although scheme rules may not permit this.
Orange has had to take a ‘do-it-yourself’ approach to the new benefits combination, as it said it could not find a suitable product on the market.
This may not last however, as a number of SIPP providers are rolling out what they call group SIPPs.
Although these group products are, in some cases, really a series of individual SIPPs sold en masse.
In some cases, such as for small firms with a few highly paid staff, such contracts may work. But for large corporations like Orange, the need is for a provider that has the administrative capability to seamlessly transfer shares into a pension plan and to back this up with a suitable investment platform and even financial education for staff.
Ordinary SIPPs allow individuals a very wide range of investments, but a workplace SIPP may well restrict this, due to employer fears of being associated with investment losses.
Advisers think such products should also offer a charging structure more in tune with ordinary employees than the usual well-off SIPP user.
The possible link between these two existing benefits is a spin-off from ‘pension simplification’, something the UK government brought in last year in an attempt to streamline the UK’s immensely complicated pensions system.
However, the tax authorities did not foresee this result and may be unhappy about it.
Certainly chancellor Gordon Brown has ‘form’ in cracking down on what he sees as abuses of the tax rules.
Advisers believe, therefore, that workplace SIPPs must be aimed at ordinary employees, not senior executives, and providers and employers should stress this.
This will require a degree of responsibility that hasn’t always been the case in the UK pensions and savings market.
But as things stand, to paraphrase Orange’s old advertising slogan; the future’s bright, the future’s the workplace SIPP.