Please send your queries to Dominic Coyle, Q&A, The Irish Times,
D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.
Special savings scheme
The Special Savings Incentive Account scheme started on May 1st, 2001. If an account is not opened until the end of the period laid down by the Government, will the five-year contribution from the Government start from that date or does the contribution end on May 1st, 2006. For instance, if I open the account on the April 1st, 2002, will the Government contribute for a full five-year period to 2007?
Mr M.McK., e-mail
Yes it will. The Government has set down a one-year entry period for people interested in availing of the Special Savings Incentive Scheme. This runs from May 1st, 2001 to April 30th, 2002. Prospective savers can open one account at any time during this period and the Government will contribute £1 (€1.27) for every £4 saved for five years from that date, whatever it is.
A slip of the fingers last week has added to the confusion, when I said the Government contribution would run only until April 30th, 2006, regardless of when the account opened. The contribution will continue for five years - up to April 30th, 2007 for those accounts opened on April 30th, 2002.
In the literature on Special Savings Incentive Schemes available from my bank, I notice in the small print that "the account holder must remain either resident or ordinarily resident in the State during the term of the SSIA account". The question is what happens if you are not - i.e. if you choose to move abroad for a year or more during the term of the account? Are you obliged to close the account, most likely incurring penalties or can you leave it dormant until you return and then continue making payments? What happens if you never return?
Mr P.S., e-mail
Moving abroad for a year would not necessarily alter your eligibility on contributing to such an account. While the term resident in the notes on the form from your bank means those people living and paying tax in the Republic, the other term - "ordinarily resident" - applies to those who generally reside here but have gone abroad recently. You become ordinarily resident three years after you first become a taxpaying resident in the State and you can remain ordinarily resident for three years after you move abroad. People who are ordinarily resident pay tax in the Republic on their worldwide income with the exception of income from employment conducted wholly outside the State - which would seem to cover your scenario - and other income up to a maximum of £3,000 each year.
Those people who are eligible to set up an account but can no longer contribute to it because their eligibility ends - i.e. they are no longer resident or ordinarily resident in the State - do not have to close the accounts but can make no additional contributions. The money already in the account, including the Government contributions, will continue to mature and can be encashed with no penalty at the end of the five-year term or later if the terms of the account so permit.
Would it be possible to put £1,000 in one go instead of putting a lump sum every month? Could I start by saving £100 a month and then increase/decrease this amount if my financial situation changes?
Ms V.N., e-mail
I'm afraid you will not be allowed to invest a once-off lump sum. The scheme is designed to encourage regular savings by people, thereby reducing the pressure on consumer spending - or so the theory goes. As such, you will have to make your payments monthly. There is nothing in the scheme to stop you raising or lowering the amount you save month by month to reflect personal financial circumstances. The Government will simply make its contribution on a one-for-four ratio to your savings.
Is the new savings plan available to Irish citizens living outside Ireland who have property in Ireland with plans to retire there in the next five years?
Ms M.W., e-mail
Eligibility for the scheme depends on residence not property ownership or future residency plans. Under the rules, you have to either be resident or ordinarily resident in the State to set up and to continue to contribute to such an account.
When a company states that there is no switching charge within its funds, does this mean that there is no bid/offer spread?
Mr P.E., e-mail
No it doesn't. Switching charges refer to costs incurred when switching from one fund to another. Many of the institutions offering equity based products offer a range of different funds to appeal to people looking for low, medium and high-risk options. In general, institutions will charge people to switch between funds in search of better returns or a lower risk profile. However, several of the institutions offering a range of equity-based Special Savings Incentive Account options have decided not to charge customers switching between one fund and another within the same institution. This was one of the pre-requisites for the Consumer Association of Ireland kitemark, although too much should not be read into the fact that some funds have this award and others do not.
I am an Irish citizen but have been working abroad for several years, so currently I am not resident in the Republic. I have not changed my citizenship status and my Irish address is still my stated place of residence. Although I do not have a PPS number, I do have an RSI number. Am I still able to take part in the savings scheme through a direct debit from my Irish bank account?
Mr B.D., e-mail
I doubt it. Residence in this case is a tax issue. You do not say how long you have been working out of the State. If it were more than three years, you would not even be ordinarily resident here in tax terminology. The simple test is: where do you pay your tax? If your income is largely taxed in the Republic, you are likely to be tax resident here; if not, your tax residence is probably elsewhere, regardless of your citizenship, your Irish property address and the existence of your Irish bank account.
For your information, your RSI number is also your PPS number. The Government merely changed the system to allow it apply also to people outside the workforce who might apply for social welfare payments.
My wife and I currently have a joint investment of £25,000 on deposit with Irish Nationwide. Whilst originally this attracted a reasonable interest rate, this has now dropped well below the rate of inflation. Can we open an SSIA with Irish Nationwide (or any financial institution) and use the original account to feed the new SSIA monthly? My wife currently is not in paid employment, but she has her own PRSI number. Can we therefore open a joint SSIA and pay £400 monthly, or is it necessary to open two separate accounts?
Mr D.R., e-mail
The Government was targeting this scheme at new savings and did not intend people to switch their savings from one institution to another. However, it is difficult to see how they are going to stop people doing so. It may be possible to have people declare on application forms that they are not borrowing to fund these accounts - although even that will be difficult, if not impossible to police - but it is unimaginable that the State could or should police how we switch savings to benefit ourselves. The only impediment would be any condition of your existing Irish Nationwide account restricting movement out of the account.
Certainly, there is nothing to force you to open any Special Savings Incentive Account with Irish Nationwide. You cannot open joint accounts but there is nothing to stop you opening two separate accounts. It doesn't matter whether the account holder is working or not and while there are restrictions on passing funds to others - including adult children - to allow them to open accounts, there is no such impediment between spouses.
I'm living in America but would love to get involved in the plan. Is it for residents only or is there a way to save for a family member's education other than handing over the cash to the guardians. I'm an Irish citizen and would like to get a fund in my niece's name. She's only five but it's not too early.
Mr D.McC., e-mail
Nice idea but the scheme is for residents only. In any case, you would not be allowed to open an account in the name of a minor. Another of the eligibility rules is that account holders must be aged 18 or over.
My wife and I bought a house last year and have a 20-year mortgage for £112,500. The current interest rate on this mortgage is 6.2 per cent (6.3 per cent APR). Bearing in mind the tax implications on both mortgage interest relief and on the new Special Savings Incentive Account, would I be better off by simply increasing my mortgage payments by £200 per month rather than making the same contribution to, say the ACC Bank's fixed interest Government savings scheme?
Mr D.M., e-mail
One of the areas of concern for some people is the fact that it appears you would be better off putting your money into the Special Savings Incentive Account scheme for five years rather than using it to pay off your mortgage faster or put money into retirement savings through additional voluntary contributions or the soon-to-arrive personal retirement savings accounts.
However, this is true only if you transfer the money to your mortgage/pension account at the end of the term. The justifiable fear is that people will invest in the Special Savings Incentive Scheme with the best of intentions for five years only to find the urge to spend the proceeds at the end of the term too much to resist. For those with enough discipline, the Government savings plan seems the best option.
I would like to sign up to an Special Savings Investment Account. Currently, I would like to invest the minimum amount, which in most such accounts is approximately £40. However, I would like to have the option to increase this amount over the five-year period. First of all, is there the possibility to increase the amount invested and if so, how much does this change cost? Secondly, if I, for instance, increase the amount from £40 to £200 per month in the fifth year, am I entitled to the £1 for every £4 on the increased amount as well?
Ms A.D., e-mail
The terms of the scheme specifically allow you to raise - and indeed lower - the amounts you invest, so there should be no problem there. There should be no cost for this change over and above the charges incurred in the running of your account, which may work on a percentage basis. On your second point, you need not worry about the Government contribution. The State will match your contributions on a £1 for £4 basis, whether you invest £40 or £200 a month and will adjust its input as you adjust yours, up or down.
In the near future, I expect to inherit approximately £100,000. Can I avail of the Special Savings Incentive Account by investing this amount or more in this new Government scheme?
Mr J.J., Sligo
You can invest some of your inheritance in the scheme on a monthly basis but not as a lump sum. The maximum contribution is £200 a month. Over the five-year term of the scheme that would amount to £12,000. That still leaves you with some thinking to do about the balance of your inheritance.
