There has been quite a bit of concern about what happens to free shares issued by Old Mutual in its demutualisation to policyholders in deferred compensation schemes.
Most deferred compensation schemes work on the basis of companies paying premiums on endowment policies, which then pay out to employees on their retirement.
The employer owns the policy and not the employee. Many employees have expressed fears that the windfall would not be passed on to them. Another problem has been the tax position when the benefit is passed on to the employee.
Employers also have the option of transferring the shares immediately to the employee, or deferring transfer until retirement. However, the employer may not have been able to claim a tax deduction, reducing the value of the shares.
Old Mutual says that in the case where payment of the shares is delayed until retirement, the taxman will probably want proof that the employee was entitled to shares.
Old Mutual recommends that an addendum to any deferred compensation agreement be signed so that the employer will have to pay any tax. The addendum will also give employees greater peace of mind about the ownership of the shares.