Over 1 million of us signed up to an SSIA, saving up to €254 per month for 60 months, resulting in over €14 billion in savings for the entire nation.

 

Those who saved the maximum are expecting to receive approximately €20,000 and for couples that amount could be €40,000.

 

Approximately 70% of SSIAs weren’t taken out until the last few months of the scheme, therefore it is the months of March to May 2007 that the majority of the funds will become available to spend or reinvest.

 

The Question looming in everyone’s mind is: do I spend it on a holiday, new car or do I look at investing it for the future?

 

If you haven’t already received your lump sum you first of all need to ensure that you take the necessary steps entitling you to it.

 

First, make sure that your SSIA Provider has your up to date address, in case you have moved over the past 5 years.

Secondly, make sure you have an up to date statement of your SSIA and check to ensure all lodgements are accounted for.

Finally, you should receive an SSIA 4 Form from your provider.

 

What is an SSIA 4 Form?
This is a legal declaration stating that you qualify for the funds on maturity of your Account.

The declaration confirms that you qualify to hold onto the Government contributions (the 25% top up) without being penalised through a clawback of 23% of the entire value of your Account.

Therefore, you should only pay tax of 23% on the growth on the account, like DIRT on a savings account rather than on the entire value of account.

 

When you sign the declaration you are confirming that:

ü      You held only 1 SSIA

ü      You are the legal owner of the account

ü      You were resident, or ordinarily resident, in the State over the 60 months (check with the Revenue if you are unsure of this)

ü      The moneys lodged came from your own resources, i.e. you didn’t borrow money to fund it

ü      You didn’t assign it as security for any borrowings

ü      You confirm that all information provided is true

 

 

 

Options for your SSIA
 

1. Reducing your Mortgage Balance
   

 

With the ECB Interest rate having recently increased to 3.75%, the typical Tracker/Variable rate that people are paying on their mortgages is now between 4.50% & 5.50%. 

If you take your €20,000 or €40,000 lump sum and lodge this directly against your Mortgage balance and you are paying an interest rate of say 5% on your Mortgage, you are effectively getting a tax free return of 5% on your lump sum as you have reduced your cost of borrowings by this amount.

If you were to leave the lump sum on deposit you would have to pay DIRT on interest earned.

 

By lodging a lump sum to your mortgage you can either reduce the term of the mortgage or reduce the monthly repayments.

 

2. Clearing personal loans, overdrafts & credit cards
   

 

If you have personal loans, overdrafts & credit card debt, where you are probably paying interest rates of between 8% & 20%, then it makes financial sense to clear these debts from you SSIA.As per the Mortgage scenario, clearing these borrowings is effectively giving you a tax free return of between 8% & 20%, which would be hard to achieve without taking a high risk with your investment.

 

When assessing which loans to clear, make a list of all outstanding debts and clear the ones with the highest rate of interest first, i.e. probably your Credit Card!

 

If you haven’t enough funds from your SSIA to clear all your debts, you should redirect your monthly SSIA contribution to paying off the balance of your debts faster and maybe look at refinancing your debts on a lower rate through one loan, with your Credit Union or Bank.

 

3. Savings Plan for the Future
   

 

If you have children, one of the biggest burdens in the future will be educational costs, i.e. college fees, books & accommodation. 

A solution to reducing the burden of these expenses in the future is to use your SSIA funds as an investment for your children’s education in the future.

Therefore, on receipt of your SSIA funds you should look at reinvesting the lump sum and continuing the monthly contributions into either a high yield deposit account available through your Bank, Building Society, Credit Union or Post Office or through various Investment Funds with Insurance Companies.

 

The particular vehicle for investment will depend on the length of time before you need to access the funds for your children’s education.

If the children are due to start in college in the next 5 years, then the high yielding deposit option is best as the time you have to invest is short and you will want to avoid any short term volatility.

 

However, if your children are young and you are looking at 10-15 years before they start in college, then you should look at the various options available through the Insurance Companies, where you can invest in various assets, such as Commercial Property & Equities/Shares.

 

4. Starting or Topping Up a Retirement Plan 
   

 

If you are a higher rate tax payer, diverting a monthly SSIA contribution of €254 to an existing or new Retirement Plan, would be the equivalent of investing €480 per month in your Retirement Plan as you will receive tax relief @ 47% on your contributions. The level of contributions is restricted to a percentage (based on your age) of your gross relevant earnings per annum. 

You may also have the option of using the lump sum to make AVCs (Additional Voluntary Contributions) to your existing Retirement Plan.

 

If you are a low rate tax payer earning less than €50,000 the Government are offering a SSIA type top up when you transfer funds from your SSIA to a Retirement Plan.

The Government will make a once off top up contribution of €1 for every €3 invested in a Retirement Plan, up to a maximum contribution of €7,500 by the individual & €2,500 by the Government.

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