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
If I choose not to open a special savings incentive account until later this year, will it still run for five years or is the five-year date fixed to the opening of the scheme on May 1st, 2001 - i.e., all accounts will close on April 30th, 2006, irrespective of when they are opened over the next year?
Ms D.T., e-mail
The five-year term cited in literature on the scheme refers to the Government contribution, not to the account itself. As such, with very few exceptions, the accounts will not close at the end of April 2006, unless the saver chooses to close them at that time. This is especially so for equity-based savings where most people advise the accounts should be kept open beyond the term of the Government contribution.
What is true is that the Government contribution of £1 for every £4 saved will conclude at the end of April 2006, regardless of when the account is opened. As such, if the saver opens an account in April 2002 - the last month possible - they will benefit from Government contributions for four years.
Regarding the SSIA I believe it is for a five-year term and only for residents of this country. What would happen if a foreign national (from another EU country), living and working here in Ireland, with an RSI number, opened a special savings incentive account and found that they had to return to live and work in another country before the end of the five-year term? Could their savings be continued by another party to complete the term? What are the options?
Mr J.S., e-mail
Foreign nationals working in the Republic are certainly entitled to open such an account if they meet the criteria - are over 18, resident in the State and holding a Personal Public Service number (which has recently replaced RSI numbers) - but they can no longer contribute to the scheme once they lose their residence status.
Of course, if you have been a tax resident here for three years, you become ordinarily resident in the State at the start of the next tax year and remain so for three years after leaving the State. Such status would allow you to continue contributing to the scheme in my view. The Revenue is a bit cagey about it, saying that a decision would be made in each individual case, depending on circumstances. However, people who are deemed ordinarily resident are liable to tax in Ireland on worldwide income - with the important exception of income from employment conducted entirely outside the State and other income up to a maximum of £3,000. You would also need to check the terms of any double-taxation agreement that might be in place.
After hearing endless numbers of economists' opinions regarding deposit versus equity-based products, most people are still none the wiser as to which one to choose. Is there anybody prepared to stick their neck out and make a recommendation based on a person saving the maximum amount for the full term? Are there any figures available to indicate the expected return from an equity-based product, based on past performance? I am talking about based on monthly instalments and not on an initial lump sum as most results seem to be based upon.
Mr K.N., e-mail
It is true there is a lot of information out there at the moment as various banks and financial institutions vie for the business under the new scheme, but I am sure there would be vociferous complaints if information on such a major scheme was sparse. However, it is not true that there has been no guidance on what people should do. The actuaries, Becketts, among others, have suggested that those looking to invest purely for the five-year term should stick to deposit products as equity-based investments are designed, in general, for a longer period. Most of the advice urging people to look at equity-based investments has come from providers of such products and, even then, many have reminded people that such accounts can be continued beyond the term of the Government's bonus contribution. In some cases, there are even further bonuses on offer from the product providers, such as Irish Life, to encourage investors to do so.
There has also been a number of studies, in this newspaper and others, showing which products would perform best over the five-year term, given a standard investment return and allowing for charges. On this basis, Quinn Life seems to come out on top but it is a relatively new player and people need to make a judgment on its likely investment performance. Charges are, after all, only one element of the equation. Different fund managers will produce a range of returns over the period. Savers need to gauge the likely performance of the individual and generally anonymous fund managers in today's volatile markets. In other words, they have to take a gamble.
If people do follow the general advice that the odds favour staying with deposit accounts if you intend saving for just the five-year term - and the impression within the industry seems to be that this is indeed where the bulk of investments will go - it is quite simple to judge which institutions offer the best rates. All you need to do is judge whether to take the variable rate on offer or the fixed rate. If you do opt for a variable rate product, you need to look not at the headline rate - the figure now on offer - but the potential rate - the level below the European central bank rate to which it can fall. On this premise, Northern Rock and ACC, which guarantee to match the ECB rate, are the best options. As with mortgages, such a choice is always a gamble but, as the Government says, it is not underwriting any particular scheme; it is simply providing an incentive to people to save. Where they do so is their own business.
