Research published last week by Goodbody Stockbrokers has highlighted the huge amount of money that will flow into the economy in 2006/2007 from maturing of the Special Savings Incentive Accounts. Goodbody economist Colin Hunt estimates that the total value of the accounts when they mature will be €14 billion, with the majority of the money falling due in 2007. It is good news for those with savings, with an average value of €13,000 to €14,000 and a hefty return on investment due to the top-up from the Exchequer.
There are pluses and minuses for the economy from the release of so much cash. It will boost consumption and give a push to economic growth. However, the risk is that it will stoke inflation and contribute to overheating. Much will depend on the state of the economy when the funds are released. The SSIA boost could be a welcome lift if growth is lacklustre, but a considerable danger in a period of buoyancy.
The amount of money involved is so large that it would be prudent for the Government to encourage account- holders to continue to save at least some of the money. The decision is, of course, for those who hold accounts. It is their money and many may already have plans ranging from buying a new car to spending on a holiday to paying off a mortgage or other loan.
One of the key goals of the scheme was to encourage the habit of saving. Many of the financial institutions will encourage people to continue saving after their SSIA matures - and, no doubt, many will. Savings are particularly deficient in one area - pensions - and a clever policy approach could encourage account-holders to roll over some of their SSIA savings into pension plans.
There are a number of possible approaches to doing this, but the basic goal should be to get people to invest some of the money into their existing pension fund or into a new product such as a Pension Retirement Savings Account (PRSA). Proper advice is needed in this area and it is essential that people are directed into products appropriate to their circumstances - in the past the investment industry has, in some cases, taken hefty fees on savings products and delivered poor returns.
Thus the Government and its advisers need to consider a once-off amendment to the rules to allow people to invest SSIA funds into their pensions (at the moment the amount on which tax relief is available is limited each year). They need to make such investment attractive and they need to ensure that appropriate products are available in which people can invest. It should not be an impossible task and now is the time to consider it.