If you are one of the 500,000 SSIA holders whose SSIA matures in March/April – then you may be facing into the pleasant task of deciding ‘What to do with my lump sum?’ and ‘Will I or can I continue saving?’ by Jim O Kelly QFA, CEB, BFS George Lee originally described the SSIA concept as a ‘no brainer’, meaning that we who took out SSIAs were getting a guaranteed minimum return of 25 percent from the Government, on our money by committing to saving for the five years. Yes, it may have been difficult in the early years to put money aside, but over time the savings habit kicked in and we found it easier to provide later into the savings programme. The debate for each of us in the coming weeks will be to spend it or save it, while in reality consumers can continue the habit of saving and also take a partial encashment and get access to the hard saved cash for those ‘one offs’ like a new car, dream holiday etc. Before we explore options there are some facts that we should look at: 90% of SSIAs are/were invested in deposits and would yield the following if invested at ECB rate €20,250 before tax, fixed rate 4.25% €21,288 before tax, inflation rate €20,780. · The average deposit SSIA before tax — just kept abreast of Inflation. · Bank shares rose over 100 percent in value in the same period. · SSIAs invested in Equity Funds, Property Funds or Mixed Funds all outperformed deposits even allowing for recent drops in equity markets. There was certainly a ‘no-brainer’ in relation to the concept of SSIAs but sadly most of us carried this right into our investment strategy and invested in the ‘sure bet’ which gives the least in terms of return and does not beat inflation and in real terms our money lost some of its value. Sadly, there is a belief that in making that original investment decision most of us did not get individual advice and as a consequence whilst the Government provided the real return (25 percent guaranteed return), we who opted for Deposit SSIA got very little else. It is important that if you are considering future ongoing savings then some thought ought to be given to investments that will over time beat inflation and increase the real value of your money. With this in mind the Government has rolled out SSIA Pension Incentive whereby the Govt will fund 1 in 3 to a max of €2,500 whereby €7,500 of SSIA maturity is transferred to a Pension or PRSA of the SSIA holder. In theory this is lovely, but for a young person this means locking the funds away until they are 60 years old, or in the case of the higher tax payer this new scheme would see them lose money as by availing of this incentive should a similar amount be paid into a pension or PRSA attracting tax relief at 41 percent they would in effect have €4,000 less in their pension as a result. Other options include retaining some of the maturity value in a Capital Guaranteed Product with exposure to equities and continue saving or funding an alternative investment that would beat inflation. Depending on age, consumers could look at funding AVCs (voluntary contributions), be it to their own pension scheme or to a PRSA – which would give them ownership of their money when they reach 60 years of age and also funding would benefit from generous tax breaks. This is particularly suited to those aged 50+ who are currently in pensionable jobs but whose current pension entitlements will not reach 66 percent of income threshold. If you intend funding for long-term projects, i.e. children’s education, consider equity based products to give that extra lift and ensure over time that your money beats inflation and grows in real value. For the more short term depositor and more cautious of us who require capital security, then we ought to try and get the best rates on deposit – Anglo Irish Bank currently offer 4.25% on 30 Day Notice deposits — rate is variable. Alternatively those who intend continuing saving and are more cautious, then the various banks have regular savings schemes — some offering seven percent variable on a two year saving commitment (max €1000 per month). In short there are significant options out there – you have earned the right to choose, now make your choice count for you. We are all individuals and each person’s needs or goals may be entirely different from the next person’s, consequently there are very few off the shelf products that suit each and everyone of us and as such it is crucial that you seek and get individual advise that will help you to help yourself by giving your money/wealth the opportunity to maximise it’s potential. The two major points from this exercise are get advice (those who did benefited) and beware of ‘off the shelf products. On a house-keeping note, ensure that your SSISA4 forms are signed, completed and returned to your SSIA provider. If you have built up short-term personal debt in your efforts to fund SSIA, then get rid of this as early as possible as short-term loan payments or credit card payments eat into your day-to-day finances and are also the most expensive. If you intend changing the car with your SSIA, do not stop saving, as remember in 3-4 years the car will be that much older and requiring change – in that way the cost of changing will be softer than being hit with a significant cash call in a few years time. * Jim O Kelly is executive director and sole proprietary owner of Benchmark Financial Services BMW Ltd, The Square, Ballaghaderreen. Jim has 30 years experience in the Financial Services industry and has an Hons degree in Financial Services from UCD. Jim also holds Diplomas in Investment Advice and Wealth Management and is a member of both The Institute of Bankers in Ireland and Professional Insurance Brokers Assoc.
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