# Savings in the post SSIA world



## BillyNoMates (26 Aug 2005)

Brian Cowen has said that the government are not going to offer any further savings schemes after the  SSIA's mature. He rightly believes that it should be up to the institutions who had the use of all this money to provide the financial products to attract this money back.

Surely the banks etc. are going to try persuade people to roll at least part of their SSIA nest egg into some other scheme. 

AIB have recently raised the rate they offer on their online savings scheme to 3%-4.5% . They obviously didn't like the fact they were losing this business to Northern Rock and Rabo Direct. This shows even at these new rates attracting this business is profitable. 

Would anyone like to speculate on what kind of savings schemes might come out upon maturity of the SSIA's ?


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## Carpenter (26 Aug 2005)

Would it not be a good idea for the pension industry to come up with a more attractive product for the huge number of people who have made no pension provision?


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## ClubMan (26 Aug 2005)

More attractive in what way? Some _PRSAs _charge no per contribution fee and only 1% annual managent fee so it would seem difficult to go even lower and still remain viable. If people are not putting their money into a pension with this level of charges and with all of the tax/_PRSI _relief available then it's hard to see what else will incentivise them.


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## Carpenter (26 Aug 2005)

If people are not putting their money into a pension with this level of charges and with all of the tax/[i said:
			
		

> PRSI [/i]relief available then it's hard to see what else will incentivise them.


 
This is the challenge!  The government lamented the poor level of personal savings before introducing SSIAs.  If the pension industry were to devise a product where the government would make a similar "top-up" as happens with the SSIA, would this be the way to go?  I understand the tax relief already available should be incentive enough but clearly this isn't the case.  The dividend for the exchequer in years to come, in terms of an older population who are better equipped to fund their retirement etc is surely worth an extension of the SSIA top up idea?


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## CCOVICH (26 Aug 2005)

Yeah I think that pensions are attractive enough as it is.  However, I guess that if people were to commute 100% of their SSIA into a pension, this might put them over the relevant threshold for tax relief (of course they could drip feed the lump sum as AVCs in future years, up to the limit of their personal tax free threshold).

One idea for the government to mull over might be a tax break for those who commute 100% of their SSIA into a pension/PRSA, e.g. allow them full tax relief at the standard rate in the year it matures???

But then again, SSIA holders have gotten enough from the government over the last 5 years, so why should they feel entitled to any more????


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## ClubMan (26 Aug 2005)

Carpenter said:
			
		

> This is the challenge! The government lamented the poor level of personal savings before introducing SSIAs. If the pension industry were to devise a product where the government would make a similar "top-up" as happens with the SSIA, would this be the way to go? I understand the tax relief already available should be incentive enough but clearly this isn't the case. The dividend for the exchequer in years to come, in terms of an older population who are better equipped to fund their retirement etc is surely worth an extension of the SSIA top up idea?


It is arguably meaningless to compare _SSIA _and pension schemes since the former are totally liquid while the latter are locked away for decades in most cases. It looks like people are maybe going to need more stick (e.g. mandatory pension contributions) than carrot (e.g. low charges, generous tax breaks/deferrals) to prepare adequately for their retirement. On the other hand individuals need to take some responsibility for their own welfare and can't expect the state to handhold them all the way through life. Anyway, the tax breaks on pensions are much more attractive than on the _SSIA _especially for high rate taxpayers especially when the 25% tax free lump sum and no tax on growth are taken into consideration. On the other hand people may well face income tax on their pension income when they retire. I agree that a once off (?) tax exemption on rolling the _SSIA _over to a pension might be something that the Government should consider to kill a few birds (e.g. mitigate inflationary effects of maturing _SSIAs_, encourage people to top up their pensions etc.) with one stone. Of course, as mentioned above, many people - in particular the better off who could afford to maximise their _SSIA _contributions - have already obtained healthy benefits from the scheme so why should they get more? In the meantime perhaps certain agencies (e.g. _MABS_, the _Consumer Association_, _AAM _ etc.) should consider raising awareness among _SSIA _savers that once the scheme ends they might be well served redirecting their erstwhile _SSIA _contributions to other savings and/or reducing outstanding debts?


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## Culchie (26 Aug 2005)

I liked Dempsey's idea of a type of bond that would be used for Capital Investment in Schools and Infrastructure.


I wouldn't mind putting my SSIA money into a project that we all benefit from as an economy .... roads being an obvious one.


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## CCOVICH (26 Aug 2005)

ClubMan said:
			
		

> It is arguably meaningless to compare _SSIA _and pension schemes since the former are totally liquid while the latter are locked away for decades in most cases. It looks like people are maybe going to need more stick (e.g. mandatory pension contributions) than carrot (e.g. low charges, generous tax breaks/deferrals) to prepare adequately for their retirement. On the other hand individuals need to take some responsibility for their own welfare and can't expect the state to handhold them all the way through life. Anyway, the tax breaks on pensions are much more attractive than on the _SSIA _especially for high rate taxpayers especially when the 25% tax free lump sum and no tax on growth are taken into consideration. On the other hand people may well face income tax on their pension income when they retire. I agree that a once off (?) tax exemption on rolling the _SSIA _over to a pension might be something that the Government should consider to kill a few birds (e.g. mitigate inflationary effects of maturing _SSIAs_, encourage people to top up their pensions etc.) with one stone. Of course, as mentioned above, many people - in particular the better off who could afford to maximise their _SSIA _contributions - have already obtained healthy benefits from the scheme so why should they get more? In the meantime perhaps certain agencies (e.g. _MABS_, the _Consumer Association_, _AAM _ etc.) should consider raising awareness among _SSIA _savers that once the scheme ends they might be well served redirecting their erstwhile _SSIA _contributions to other savings and/or reducing outstanding debts?


 
Indeed.  If people have been able to save for the last 5 years, than why can't they continue to do so in the future?  There are now more deposit accounts and unit linked savings plans on the market that offer:

easy access (no minimums, or low minimum deposits)
low/no charges
better returns (in the case of NR/Rabo/AIB deposits)
The only reason I can think of for people to stop saving, is if they use the SSIA proceeds as a deposit on a house, and then they would have mortgage payments to make on a monthly basis (as opposed to saving).

Of course (almost) nothing available from the financial institutions that's not subsidised by the government will yield the same type of returns as an SSIA, but then I don't suppose that Dolores is expecting to win the lottery again does she?


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## CCOVICH (26 Aug 2005)

Culchie said:
			
		

> I liked Dempsey's idea of a type of bond that would be used for Capital Investment in Schools and Infrastructure.
> 
> 
> I wouldn't mind putting my SSIA money into a project that we all benefit from as an economy .... roads being an obvious one.


 
Fair enough, but you will expect a return from that investment, right?

This will have to come from things like toll roads, school fees whatever.

There isn't too much goodwill towards NTR for their tolling activities on the Westlink at the moment, or towards Mary Harney's idea for privately funded ('with profit') public hospitals, is there?


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## Sherman (26 Aug 2005)

Why do we even care if people aren't saving enough/at all for their retirement? If they want to live in squalor dependent on state handouts then its up to them. The state already gives enough to people who refuse to/are unable to take care of themselves without acting as their Daddy and forcing them to save. If people choose to spend all available income now, rather than undergo the hardship and self-denial of deferring that expenditure, that's their choice.


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## CCOVICH (26 Aug 2005)

We should care.  The age profile of most western economies is such that there will a higher proportion of retirees (as a % of the total population) in future years than ever before.  The more and more people that are forced to live solely on state pensions increases the pressure on the government to increase state pensions and offer other 'handouts' to retirees.  These costs will be borne by all taxpayers (me, you, our children etc.).  And taking the 'I told you so' attitude with people in their 70s/80s isn't very nice, is it? Nor is having a sizeable percentage of your country's population living squalor.  It's no skin off my nose to 'care' about whether or not people are saving enough for their retirement.  It will hurt when it's starts hitting my pocket though.


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## Carpenter (26 Aug 2005)

While most of the readers/ contributors to AAM would have sufficient financial savvy to know that retirement planning and funding pensions are good and worthwhile things this may not be the case for a sizeable majority of this country's citizens, particularly those on lower incomes.  I wouldn't see the state contributory pension as a handout, it's is funded (maybe only partially, I don't know) and payable based on PRSI contributions surely and is therefore an entitlement.  I think it it would be a very sweeping statement to label the non-contributory state pension as a "handout" either.  In the past many women (I assume the non contributory pensions is claimed mostly by women) would not have had the opportunites to work outside the home, but nevertheless still made a contribution to the country, before professional childcare was more readily available.


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## Brouhahaha (26 Aug 2005)

Will the banks worry about a lot of people paying off some of their mortgage with their SSIA? Would cost the banks a chunk of money in avoided interest.


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## CCOVICH (26 Aug 2005)

Sigh.  I put commas around the word handout because I couldn't think of another word to cover the various benefits that retirees on state pensions receive.  You'll note that I never actually referred to the state pension as a 'handout', I referred to other 'handouts'.  I did not make any sweeping generalisations, and I certainly don't begrudge pensioners anything they get.  If that burden/cost/expense (I want to be careful with the words I use here, lest I'm accused of any further 'sweeeping generalisations') to the taxpayer can be somewhat alleviated by people saving more for their retirement now, well that's a good thing for everyone in my book.  

Btw, it wouldn't matter how much financial savvy you have, if you're on low income your not going to be able to save for a pension anyway.  Nowhere did I suggest that people on lower incomes should be coerced or expected to save for retirement just to make life easy on the rest of us, I am only concerned that people who can afford it are making some sort of provision for their retirement while they can afford it.


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## maevis1 (26 Aug 2005)

Evening all,

Just a thought regarding the possible creation of a successor to the SSIA but designed to increase an individuals pension cover.

A similar scheme is set up whereby an individual can save/contribute (up to a fixed upper threshold) and the government contribute a percentage based top up, (not necessarily 25% but say 10/15%). The money saved is put into a suitable pension scheme/fund as normal. The difference being that instead of the money being locked away till retirement an option is available to cash in or redeem the governments contribution say every five years. It would be a form of rebate system.

Contributions to pension would increase and people would receive say a cheque for the governments contributed portion every five years.

Taking a simplistic view and using the current SSIA rates and thresholds a person saving the maximum amount would receive €3810 after five years and would have contributed €15240 to their pension.

Just a thought?

Regards


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## dam099 (26 Aug 2005)

maevis1 said:
			
		

> Evening all,
> 
> Just a thought regarding the possible creation of a successor to the SSIA but designed to increase an individuals pension cover.
> 
> ...


 
To be honest I think top rate tax payers get more than enough incentive to contribute to a pension already (a 42% + 6% tax break), so the Government is already effectively matching their contributions.
Any further incentives should be targeted at lower rate tax payers perhaps by giving them a credit that is higher than their marginal rate.


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## ClubMan (27 Aug 2005)

maevis1 said:
			
		

> A similar scheme is set up whereby an individual can save/contribute (up to a fixed upper threshold) and the government contribute a percentage based top up, (not necessarily 25% but say 10/15%). The money saved is put into a suitable pension scheme/fund as normal. The difference being that instead of the money being locked away till retirement an option is available to cash in or redeem the governments contribution say every five years. It would be a form of rebate system.


Have to agree with _dam099 _- as I've said before above there are arguably more than enough tax breaks, especially for the higher paid, to encourage them to contribute to pension savings. If this is not incentive enough (and the relative failure of _PRSAs _to significantly extend pension coverage seems to bear this out) then I suspect that we will eventually see some form of mandatory requirement to make pension contributions (most likely falling on both employers and employees). I certainly don't think that any sort of extension of the _SSIA _scheme should be considered even if the aim is to promote pension savings. Perhaps some incentive to roll maturing _SSIA_ funds (in part or full) into pensions should be considered though. I also don't think that being able to liquidate pension savings before retirement is a good idea since the temptation will simply be too great for many people thus defeating the purpose. At the very least if early encashments of pension savings are allowed then they should be subject to significant tax clawbacks to discourage them.


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## Guest127 (27 Aug 2005)

a lot of employees retire on a gratuity of 78 weeks pay plus 50% of their normal salary when they retire. these are in defined benefit schemes. the revenue have a limit of 50% on these pensions, so a lot of these can't effectively contribute to an AVC, as its not possible to make any worthwhile withdrawals from the AVC or ARF. Perhaps they could be allowed to invest their SSIA in a pension scheme ( at say 5% interest) and be allowed to draw down a percentage each year after say 60/65 years of age with no Dirt on the interest of either the SSIA or the pension scheme. Wouldn't break too many banks and the benefit to a pensioner might be considerable. 50% of full pay is a fair  drop in income.


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## podgerodge (2 Sep 2005)

BillyNoMates said:
			
		

> AIB have recently raised the rate they offer on their online savings scheme to 3%-4.5% .



Anyone know what online savings scheme AIB has that offers this rate?

thanks


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## ClubMan (2 Sep 2005)

Yeah - [broken link removed] mentioned on the front page of their personal finance website.


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## darag (2 Sep 2005)

> I liked Dempsey's idea of a type of bond that would be used for Capital Investment in Schools and Infrastructure.


No offense but this was one of the more financially naive schemes proposed by a polititian.  It suggests that difficulties in raising finance is the reason why our infrastructure and school stock is poor.  In fact, the one thing the government can do much more efficiently than any individual or private company is  raise money.  Currently Irish government bonds pay little over the ECB rate; if the government needed 2billion for schools/infrastructure they could raise the money at rates of about 2.5% fixed for longish term loans.  A rate of 2.5% on a fixed term savings product is poor value for the saver (at current inflation rates) while anything higher than 2.5% is poor value for government finances (i.e. all of us).  Add in the cost of bureaucracy and it makes no sense except as a cheap political stunt.

The problem the government has isn't raising money - it's awash with cash and can borrow more cheaper and easier than anyone.  The problem is that it generally gets very poor value when it spends money.  The latter isn't an Irish phenomena, by the way, but it's a lot more difficult to tackle for politicians.


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## Audrey (16 Sep 2005)

Billy
I hadn't realised AIB were quoting 3%-4.5%.  I've just opened with Northern Rock at 3.05% which I thought was the best available!!  Is the 4.5% (or even 4%, or even 3.5%) dependent on lodging an astronomical sum??


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## asdfg (16 Sep 2005)

See details [broken link removed]


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## RS2K (20 Sep 2005)

Culchie said:
			
		

> I liked Dempsey's idea of a type of bond that would be used for Capital Investment in Schools and Infrastructure.
> 
> 
> I wouldn't mind putting my SSIA money into a project that we all benefit from as an economy .... roads being an obvious one.



We motorists pay about €4.4 Billion per annum to the government in taxes.

I think this is sufficient. 



p.s. We still have crap roads.


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