The government’s move to double the sharesave monthly savings limit from £250 to £500 follows several years of campaigning by organisations such as IFS Proshare and share plan administrators, but who is likely to take advantage of the new limits?
Recent research by Andrew Robinson, a professor in accounting and finance at the University of Leeds, and myself, in collaboration with YBS Share Plans, part of Yorkshire Building Society (YBSSP), provides some answers. Financial behaviour and decision making by participants in share plans , a survey presented at the IFS Proshare conference in October 2013, found that, of more than 4,500 employees participating in sharesave plans administered by YBSSP, 28% are saving at the current limit of £250 a month.
Nearly 90% of these employees indicated they would be willing to save more if the sharesave limit was increased.
The main objection to raising the sharesave limit is that it will mainly benefit higher earners. It is true that the proportion of employees saving at the current maximum of £250 rises with income, but it is not just higher earners who will benefit from the increase in the limits.
In the survey, more than 20% of those earning £20,000 to £25,000 a year save the full amount allowed under current sharesave limits, and nearly 30% of those saving at the £250 limit make no other regular savings.
One important influence on whether individuals choose to increase the amount they save in sharesave is likely to be their work colleagues. The survey provides strong evidence that the amount sharesave participants save each month is highly correlated with the proportion of their friends at work that are members of the plan, even after controlling for important factors such as income.
Employees are more likely to seek information and advice on sharesave from their work colleagues than either their employer or their family and friends. It is clear that peer effects are an important influence on sharesave behaviour, and employers should take this on board when they communicate the changes to sharesave and share incentive plans .
Andrew Pendleton is professor of human resources management at the University of York