SSIA payouts

Q&A: My wife and I took out two SSIAs at €253 each (why €253, don't ask me). Both matured at end of April and both were 4 per cent fixed with An Post and with AIB. The outcome was as follows:

AIB: €20,560.65

An Post: €19,820.98.

AIB paid out €739.67 more. Can you figure this one?

Mr L, e-mail

Having spoken to both An Post and AIB, I have an answer of sorts. Under the strict rules of the Special Savings Incentive Account (SSIA) scheme, a customer made a deposit on a certain date - say January 3rd. At the end of that month, the SSIA provider informed Revenue on the monthly contribution made and, by return, Revenue sent a sum covering the State's €1 for €4 bonus.

Strictly speaking, this was only credited to the SSIA account when it was remitted from Revenue - anything up to six weeks after the monthly SSIA payment was made by the customer.

An Post followed those rules, pretty much to the letter. AIB, in what was presumably a low-key customer service initiative, decided to credit the Government bonus on the same date the SSIA monthly contribution was made - even though the bank itself would only receive the money from the exchequer some weeks later. I understand it wasn't unique in adopting this position.

Clearly, these two positions would create a difference in the ultimate maturity value of the respective accounts. The question is, how much? An Post tells me that its strict application of the criteria would, in itself, have been enough to create a gap of about €740 - all other things being equal.

Frankly, I don't believe that. At a fixed rate of 4 per cent, five years of monthly contributions of €253 would - with the Government bonus being credited on the same date - amount to just shy of €21,000. Once you deduct the 23 per cent exit tax to the €2,000-odd in interest accruing over the full five-year period, the maturity value of the SSIA would be just above €20,500.

An Post seems to be saying that "timing" issues could account for a difference in interest accrued of €739 on total interest of about €2,000. That simply beggars belief.

Look at it this way, the 23 per cent exit tax on a 4 per cent fixed-rate "maxed-out" fund comes to about €460. An Post is saying timing differentials could penalise you for nearly twice this figure.

As one industry source told me, "you can be sure AIB priced its initiative before it went for the 'same-day crediting' of the Government bonus. If the cost per account to the bank was anything close to €740, it would simply not be commercially viable for them to do it. You're talking about hundreds of thousands of accounts here for the big institutions."

Indeed. By my calculations, the An Post line would indicate the big players, like AIB, were taking a hit of about €200 million. Most unlikely.

I suggest you approach An Post again on this matter and get a full explanation in writing. If you are still not satisfied, go to the financial services ombudsman.

SSIA exit charges

As a equity SSIA policyholder with Ark Life, the publicity concerning "exit charges" and their application by a number of companies can only be described at best as "sharp practice". In February, I contacted Ark Life and it was confirmed to me that the unit price had been adjusted downwards in November 2006.

Given that the same conditions held true when the bulk of policies matured at the end of last month, have companies penalised people a second time, considering the fact that the mechanism to apply this charge is unit-price manipulation?

Mr D McG, Dublin

The simple answer is that some will have. The situation was even more acute as more than half of all SSIA accounts were maturing at the same time.

From the point of view of the equity fund managers, the position is simple - a sudden exodus of people liquidating the assets will drive down the unit price as the funds will have to sell more stock than the market can sustain at existing prices to meet its liabilities to customers. Their view is that such a cost should be met by those people leaving the fund.

The key point is: how many fund managers pointed this simple fact of investing life to their clients as they were ushering them into SSIA equity funds? Or, as is more likely, did they simply assume they would find out in the small print?

QUERIES

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to dcoyle@irish- times.ie. This column is a reader service and is not intended to replace professional advice.