The State's exposure to special savings incentive accounts (SSIAs) may be double the €1.5 billion originally envisaged, as people boost their deposits ahead of the scheme's end, writes Barry O'Halloran
According to estimates based on the latest Department of Finance figures, the 1.13 million SSIA savers are likely to share a total payout of almost €15 billion when their accounts mature between May 2006 and May 2007.
That would leave the Exchequer facing a bill of close to €3 billion for its contribution of €1 for every €4 invested. Previous calculations of the total Government payout varied between €2.5 billion and €2.7 billion.
However, the figures show that account-holders boosted their contributions towards the end of last year. In many cases they increased them to the €254-a-month maximum that the scheme allows.
The Department's figures show that, between September and November 2004, monthly contributions to SSIA accounts jumped by more than €2 million, from €190.3 million to €192.4 million. During the same months last year, savers deposited €185.4 million in their accounts.
Mr Dermot O'Leary, economist with Goodbody Stockbrokers, calculated yesterday that each account-holder was contributing an average of €175 a month. He predicted this would increase to an average of €225 as the scheme neared the end of its five-year lifespan.
He estimated that the final State payout would be in the region of €2.93 billion, but said this was a "slightly conservative" figure.
The Department of Finance believes that total SSIA deposits, including interest, stood at more than €8 billion at the beginning of this month.
Banks and investment advisers are encouraging clients to put as much as possible into their accounts, because the returns are both lucrative and guaranteed.
Bank of Ireland Life told The Irish Times this week that, during 2004, monthly contributions to its SSIA accounts doubled to over €9 million.
Mr Alan McQuaid, of Bloxham Stockbrokers, said yesterday that, once accounts began maturing, personal spending would return to levels seen during the boom of the late 1990s.
The former finance minister, Mr Charlie McCreevy, introduced SSIAs in the 2001 Finance Act. Under the scheme, savers had to open the accounts between May 2001 and May 2002.
Once they made regular monthly deposits for at least a year, and did not withdraw cash or close the accounts during their five-year lifetime, the State agreed to supplement individual contributions throughout the five-year period by 25 per cent.
Most people opted to contribute to the accounts for the full five-year period.
The financial companies offering SSIAs also offered interest on the deposits, except for those opting for equity-based products.
The scheme was intended to encourage consumers to save and to keep a lid on spending and inflation, which was running out of control in 2000 and 2001.
Many economists have since warned that it could boost inflation in 2006 and 2007. The banking industry has called on the State to introduce a further incentive scheme to encourage people to put at least some of their windfall into their pensions.
Mr O'Leary predicted that the financial institutions would offer their own incentives to encourage people to keep saving.
"I would say they have their own plans set up, as it would be a serious loss for them to let €14.9 billion in deposits out of their grip," he said.