COMMENT
How Your Employer Can Make You Rich

They say that there's no such thing as a free lunch, but it is possible to get fat while your employer helps to pick up the bill! Let me give you three examples of this:

Company pension

A year ago, I joined the Fool's stakeholder pension scheme. Until that point, I preferred to invest in shares ISAs (an ISA is just a wrapper that protects an investment from tax). However, from last April, the Fool sweetened its pension deal, and the contribution that it offered made it too tasty to resist.

From April 2004 to February this year, I paid £200 of my monthly take-home pay into the TMF pension scheme, but I increased my contribution to £300 last month. Therefore, I paid a total of £2,500 in the 2004/05 tax year.

The Inland Revenue added "free" money worth just over £705 in the form of tax relief. Then again, this money wasn't free, because the taxman was simply returning money that he'd already taken from me. Finally, the Fool itself generously donated a further £1,519, making a total investment of £4,724. That's £2,224 more than I started with, which is nice!

But the fun doesn't stop here. As I'm a higher-rate taxpayer, I can claim extra tax relief worth 18% of £3,205 (my £2,500 plus the basic-rate tax relief of £705). This £577 will be deducted from last year's tax bill, meaning that my contribution actually cost me £2,500 minus £577, or £1,923.

So, by handing over £1,923, I got £4,724 invested, which is a gain of £2,801. That amounts to an instant return of 146% on my money. Not bad, eh? And all this before the investment gains from the cheap, simple index tracker in which I invested!

Sharesave

Every year, my wife receives an invitation from her company to invest in its shares via its Sharesave scheme. About 2½ million workers invest in these schemes, which allow you to save over a set period and then use your pot of cash to buy shares at a discount of up to a fifth. Here's the plan that Mrs D joined at the end of 2002:

Mrs D decided to put the maximum £250 a month into this plan, and she has already saved for 28 months of the 36-month term. In December this year, a tax-free bonus of £475 will be added to her savings pot of £9,000. She'll use this £9,475 to buy 1,034 shares at 916p.

At today's share price, these shares are worth £13,246 – a gain of £4,246 on her initial £9,000 outlay. This works out at a return of almost 27% a year for three years on her £250 a month, which is an absolutely terrific return. It's even better when you realise that if the shares collapsed below 916p when the time came to buy them, she could instead take her cash and make a tax-free return of 3.4% a year. So, Sharesave provides security and the potential for market-busting returns, which is a rare combination indeed!

Share Incentive Plans

Also, Mrs D puts the maximum £125 a month into a "buy one, get one free" share scheme (described here). Thanks to tax relief at 40% (worth £50) and National Insurance Contributions relief at 1% (worth £1.25), she only has to pay £73.75 to buy shares worth £250, which is an instant gain of £176.25 a month, or 239% on day one. Since starting this scheme three years ago, she has amassed shares worth just short of £9,000 in return for giving up roughly £2,675 of her take-home pay. Now that's what I call a bargain!

Learn more about SIPs here - and be warned, "Shares can go up as well as down!".

More: Stakeholder pensions | Index trackers | Buy and sell cheaply via an online broker.