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Thursday, 18th April 2024
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Becketts question suitability of many investment products for SSIAs Back  
Irish consultancy firm Becketts has questioned whether many investment products are suitable for the Government-backed Special Incentive Savings Accounts. The company has challenged much of the recent commentary on the new SISS by saying that many of the investment vehicles being offered are unsuitable for the short time scale involved.

The Government announced a plan to encourage regular saving recently which will see it add 25 per cent to the amount saved. Becketts argue that unit-linked and other equity-based savings plans may not be suited to the SISS as the five year investment period is insufficient to generate an adequate return for to the investor.

Becketts said it will be advising clients to avail of the five year plan through traditional deposit accounts and other cash-based instruments, despite the emergence of many unitised-type schemes.

According to managing director Kieran Barry ‘the hurdle rates which unit linked schemes would have to meet in order to generate a return to savers of even 3 per cent per annum above the risk free deposit return are at the higher end of any reasonable expectations - or even in excess of the generally accepted projected returns on such unitised investment products.’

‘The mean investment term over 5 years for a monthly saver is actually just 2.5 year. Hence traditionally unit-linked savings plans have normally recommended 10 year minimum hold terms’. Becketts said it was debatable whether the SISS 5 year term is long enough for a regular saver to benefit from equity investment, unless the fund concerned carries some guaranteed return.

Barry also pointed out that, as the Exchequer subsidy of 25 per cent of the monthly savings amount is effectively withdrawn if the savings are not maintained in the SISS for the full five year period, the full benefit of the subsidy is in reality deferred to the end of the investment period. As a value of the subsidy therefore varies according to the time the savings are made, with the most valuable subsidy being added in the final year, Becketts advises that savers should ensure they save the maximum amount in the final two years.

Individuals who feel unable currently to commit to saving IEP200 per month ( the maximum permitted under SISS) are advised to commence a SISS. ‘The structure of the subsidy is weighted to savers who can save for the full period, with years 4 and 5 being the bonanza years. Therefore, we strongly advise people to save even the minimum amount of IEP10 per month for the first couple of years and then increase to the maximum they can afford towards the end, to avail of the higher subsidy values,’ said Barry.

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