Make the Most of Your SSIA
Sunday, January 8th 2006
By Aileen Power

SSIA-mania can be expected throughout 2006 and 2007 as savers plan how to spend their windfalls. New cars, home refurbishments and luxury holidays are expected to be among the top choices, as, of course, are prudent financial investments.

If both partners saved €254 per month over the full term, they could now expect to receive €40,000 per family.

Most savers are looking forward to some kind of an incentive to invest in a rollover pension product with their SSIA cash, even if Minister for Finance Brian Cowen is playing down expectations in this area.

Smart savers will implement several of the following financial resolutions for 2006:

If you have an equity SSIA that is maturing this year and you want to lock in your return to date, you should consider switching to a cash/deposit fund for the final few months, so there are no nasty surprises possible from potentially adverse stock markets.

If your equity-based SSIA money matures next year, you should also consider this route.

Those with bond fund investments should also consider switching into cash, as interest rates are expected to rise further this year and this is expected to hit the price of bonds.

The more risk-friendly investors who believe that last year's stock market gains of 20 to 30 per cent (in certain cases) can be repeated will leave all their money in equities and hope their bet pays off, if they are planning to cash in on maturity. It means digging out your SSIA paperwork, but it will be time well-spent if you want more definite returns.

If you are not saving as much as you can afford, sign up for an extra €50 or €100 per month if possible.

It should be a financial priority this year to do your utmost to save the €254 per month and benefit from the government annualised return of 9 per cent (plus or minus any other returns your investments provide). It is unlikely that the biggest giveaway in the history of the state will be repeated.

If you are in the habit of saving a fixed amount into your monthly SSIA and it matures this year, you should continue the habit from June onwards into a pension product or into a replacement scheme, if the government does offer one.

Most people - bar long-serving civil servants who have guaranteed final salary schemes - know they need to save considerably more into their pension fund.

Example
An extra €254 into your pension fund per month will make a welcome addition. Importantly, you can increase this to a gross contribution of €437 when you add on income tax relief of 42 per cent (€254 divided by 58 multiplied by 100).

An extra €437 per month will add up to tens of thousands over five years, which is even faster than saving €254 monthly with SSIAs.

SSIA savers (who are also 42 per cent taxpayers) can invest €437 per month into their pension which, in effect, costs them just €254 after income tax relief, said David Robb, director of Wealth Management Services, Acumen & Trust.

Robb also said that the €20,000 lump sum from SSIAs, which many maximum savers expect to receive on maturity, grosses up to investing €34,500 into their pension if they are 42 per cent taxpayers.

Pensions
Pensions are vital for anyone who wants to ensure a secure and financially stress-free retirement. Remember that each year you should aim to increase your contribution.

This year is particularly important, as we await news on whether the government is going to take any action to encourage SSIA holders to roll over their money into pensions.

It is also a year to expect the more ready availability of pension products which will allow middle-income earners to invest in leveraged assets such as property via their tax-efficient pensions. This would be a very valuable option, but it is currently only available to high net worth individuals.

An extra €100 to €200 per month will make a big difference to your pension fund value over the long run.

Since pensions are the most tax-efficient investments for most taxpayers, you should always keep up to speed with any developments in this area.

Original Article: Sunday Business Post