Ongoing market turbulence means more than a quarter of a million people holding equity-based Special Savings Incentive Accounts (SSIAs) are losing money. Worse than that, losses incurred on some accounts are likely to exceed the Government's €1 for €4 contribution to the scheme.
As a result, institutions are starting to warn investors that they may have to keep their SSIA money tied up in equity funds for longer than the original five-year term if they want their investment to recover and make satisfactory gains.
The exact losses incurred will vary according to the institution managing the account, the type of fund and the time the SSIA was opened, but some SSIA providers say that the 25 per cent Government bonus added at the time of investing has effectively been cancelled out by poor market conditions.
People who invested in equity-based SSIAs in 2001, a full year before the Government scheme closed in April 2002, could be suffering losses of around 40 per cent.
Mr Dara Fitzgerald of Hibernian Investment Managers, said its most popular fund with SSIA investors - the Target 20 equity fund - was down more than 30 per cent since April 2001.
"It has suffered the full brunt," he said. But people are buying units on a month-by-month basis, he said, and some monthly contributions bought at very low prices could be showing a gain.
"Most people aren't a full year into the contract and many wouldn't have received annual statements yet," Mr Fitzgerald said.
"They're not going to make very good reading, but it's where the markets are in four-and-a-half years time that matters."
Mr Brian Woods, finance director of Ark Life, said the Government contribution had so far been eliminated by continuing market declines, but that peoples' funds still had sufficient time to recover.
Ark Life was among a number of SSIA providers to market their equity-based SSIAs as a longer-term investment than the five-year period where the Government bonus is added to each monthly instalment. It recommended a term of at least seven or eight years.
"We're very comfortable that we didn't mis-sell them," said Mr Woods, who added there had been very few inquiries from concerned equity-based SSIA holders.
Losses on some funds have not been quite so dramatic. Mr David O'Dowd, product development manager at Eagle Star, said its specialist equity fund, Five Star Five, was down about 10 per cent since April 2002. Investors could expect to make losses back over the longer term, he said.
This year has brought more bad news for SSIA investors. For example, people who invested the average customer monthly contribution of €200 into Irish Life's most popular equity fund for SSIA holders, Wisdomscope, saw their losses increase from 13 per cent to 17 per cent during January.
This is based on 10 contributions made since April 1st, 2002, plus the 25 per cent bonus of €500, taking the full amount invested to €2,500. This value stood at €2,171 as of January 1st, but slipped further to just under €2,080 by last Tuesday.
Switching existing contributions to a cash fund or deposit-based SSIA now would only realise current losses, warned Mr John McGovern of Becketts Employee Benefit Consultants.
However, people should investigate the possibility of putting future contributions into lower-risk funds or on deposit, he said.
