MARKET share was something the old, semi-state Irish Life used to take for granted. Then everything changed: from 1987 onwards the financial markets were rocked by one crisis after another and consumer confidence began to crumble while media criticism of poor investment returns started to grow. Meanwhile, the company changed its status to that of a publicly quoted company on the stock exchange. The old way of doing business was simply no longer good enough and Irish Life found itself losing customers by the thousands, many of them ordinary, regular savers who had become disillusioned with the products they had been widely sold in the 1980s.
The release this week of new regular saving schemes, the Personal Investment Plan, Performance Equity Plan (PIPS apd PEPS for short) and a deposit-based Credit Club is Irish Life's long awaited response to the realities of the marketplace, which is now demanding low costs and charges and a high degree of flexibility in the way in which contributions are paid.
These PIPS and PEPS are not unique. Both Bank of Ireland and AIB have offered these products for the last year - and captured a huge market share - but Irish Life has added a couple of unusual features, such as automatic free life cover based on age and a multiple of fund value up to a maximum £10,000, and for those customers who are particularly conscious of secure investment growth, the incorporation of a `tracker'-style investment fund for the Performance Investment Plan.
The first savings plan, the PIP is designed ideally for a five-year savings period, the point at which even a conservatively growing fund should break even and start to generate real profits. It requires a minimum monthly contribution of £60 a month or £15 a week and is payable either by direct debit or as a salary deduction.
PIP charges are kept relatively low a standard 5 per cent `contribution' charge on every payment (once known as the bid/offer spread) and a 1.5 per cent annual management fee on the value of the fund. All sales commissions, set-up charges and other fees which, in the old days, used to absorb up to two years worth of contributions are now being taken out of the 5 per cent contribution charge, said a company spokesman, resulting in maximum allocation of monthly contributions to the investment fund. (After each five years, if the customer has held onto the product the intermediary will receive a 5 per cent bonus, an amount not taken directly from the investor's fund but directly from Irish Life, said the spokesman.)
Perhaps anticipating questions about Irish Life's mundane, Man aged Fund performance over the past number of years, the PIP has been designed as a `tracker' fund, blinked to the FT Actuaries World Index which includes investment in household names like General Electric, AT&T, Coca Cola, Toyota, Microsoft, BP, General Motors and Irish firms like Smurfit, CRH and Irish Life. Whatever growth is achieved (after tax and charges) by this index will be reflected in the growth of the PIP and Irish Life will also pay annual bonuses to reflect the investment dividends paid by this index of companies. Typical bonuses would be between 1-3 per cent based on past performance. Capital is not guaranteed but the risk profile of this fund would be considered quite low. An increasingly standard feature of these new generation regular savings products is that they allow a greater level of contribution flexibility than the old plans which imposed penalties if you stopped and re-started your premiums or wanted to increase the amount being saved. Even lump sum additions attracted the full phalanx of commissions and charges. The PIP allows all the above, plus a switch into a cash fund, but at no charge.
The PEP, or Performance Equity Plan, requires a minimum £80 monthly contribution (or £20 per week) but qualifies under Special Investment Account rules for a 10 per cent tax charge to the fund, rather than the higher rates that apply to most investment funds or deposit accounts. Since it comes under the low tax SIA regulations, it is only available to investors over age 18 who do not hold other SIAs. The total amount you invest is also limited by the amount of money you may also have invested in a Special Savings Account: in total, a married couple may have £150,000 invested in SIAs/ SSAs; single persons are limited to a total of £75,000.
This PEP is invested in a range company shares, government stocks (gilts), property and cash with 55 per cent of the share represented by Irish companies, 10 per cent small firms. Charges amount to a 1.75 per cent annual management fee on the fund value and the 5 per cent contribution charge. The PEP is probably slightly higher on the risk scale than the PIP, but a high exposure to gilts and cash provides a certain comfort zone for the inordinately cautious.
A switch to an all-cash fund is also available with this product (though it attracts a higher tax rate); the free life cover is automatic and flexibility of contributions is also permitted.
A common feature of both the PIP and PEP is a recommendation by Irish Life to index contributions at 5 per cent per annum in order to keep up with inflation. The difficulty with indexation is that contributions can very quickly escalate from what seemed to be a reasonable £60 a month to a less manageable £75 a month after five years. Investors should ask Irish Life to work out the level of monthly contributions over the period of years in which they wish to save to determine the effect of the indexing.
The final product being launched is the totally guaranteed Credit Club, which Irish Life would like people to associate with the popular Credit Union concept, but in reality is a more conventional bank or building society deposit account with a few extras.
The Credit Club sets a cash target and then calculates the weekly amount needed and the savings period needed to reach that target. Minimum contributions are £40 a month (£10 a week) with contributions by direct debit or from payroll deduction. Annual bonuses are paid by Irish Life of I.5 per cent on sum of less than £5,000 up to 5 per cent for amounts of £10,000 or more. Again, they recommend that savings are indexed at 5 per cent every year. Automatic, free life cover that is age related and worth three times savings (up to a maximum £10,000) is also offered.
The `Club' part of this product relates to extras such as a one year shopping discount card; access to slightly lower car loan rates from Irish Life Finance plus one-year free RAC insurance; an opportunity to borrow twice the value of your savings, and free buildings insurance for five years if you take out a mortgage with Irish Life Homeloans.
Irish Life is obviously meeting a demand for low cost, low risk savings products with the launch of the PIPS, PEPS and Credit Club. The clear manner in which these products are described in the brochures, complete with prominent warnings about investment risk, suggests that the internal revolution that has been going on at Irish Life over the past 18 months or so is finally bearing fruit. Especially welcome is the straightforward way they have laid out all the associated costs and charges and how they recommend that prospective investors consult not just an Irish Life adviser but an independent broker on the merits of the products.
Even the issue of complaints an enormous headache for the company these past number of years - is addressed with the prominent publication of contact numbers for the company's customer services manager and a declaration of support for the Insurance Ombudsman scheme.
In a fortnight when high yield, guaranteed capital savings accounts, tracker bonds and guaranteed bonds have been launched by ACC Bank, Standard Life, NZI Life and Anglo-Irish Bank it will be interesting to see if Irish Life can recover the sort of market share it once enjoyed and restore consumer confidence in its regular savings plans.
