Thousands top up SSIAs amid capping fears

THOUSANDS of people are topping up their Special Savings Incentive Scheme (SSIA) amid speculation that a cap will be placed on the accounts in the Budget.

AIB alone, which accounts for 24% of the entire 1.2 million SSIA market, confirmed more than 3,500 people have opted to hike up the monthly amount saved into the scheme since Monday.

Most financial institutions have also noticed a significant upsurge in the number of people opting to increase their savings level, fuelled by media reports that Finance Minister Charlie McCreevy is considering making a number of changes to the scheme.

These unconfirmed changes include placing a ceiling on the amount that can be saved each month, backdating this cap and lowering the penalties for people who wish to leave the scheme before the five year lock-in period is up.

Irish consumers are currently saving €177 million a month under the scheme, putting the average monthly payment at €150. The maximum amount that can be saved under the scheme, which promises £1 for every £4 saved, is €254.

At current levels, the cost of the scheme to the Exchequer will be €2.5 billion. If everyone increases their savings level to the maximum limit, the cost would rocket by another €1.5 billion.

However, experts believe it is unlikely that many people will opt to hike their savings up to the maximum limit as the level of disposable income has fallen since the scheme was first introduced last year.

IIB Bank chief economist Austin Hughes believes the minister will not only put a cap on the scheme in light of the "savage spending cutbacks", but will also backdate the cap.

"It makes sense to remove any loopholes that will cost the Exchequer even more money. Without the backdating measure, he could see the cost to the Exchequer next year rise from €550m to €900m.

"That means more than €350m could be at risk if he fails to backdate the cap that's a lot of money that could be better spent on roads or benchmarking," Mr Hughes said.

Given the minister's strong personal commitment to the scheme, Mr Hughes warned it was impossible to predict exactly what changes he will make to the SSIAs, but felt it was better for people who had entered the scheme at low rates to add more cash into the account before the December 4 deadline.

Mr Hughes warned anyone thinking of increasing the money paid into their SSIA to make sure they can lower payments again if money becomes tight.

"Check to make sure your supplier is flexible and will allow you to lower payments again after the Budget. You don't want to be locked into a high amount and then find you can't pay it a few months down the line," Mr Hughes added.

Some institutions are also recommending people to put back their direct debit mandate to before the fourth of the month to ensure they won't be caught out by any move by the minister to enforce a ceiling on the SSIAs with effect from midnight on Budget day.

Consumers' Association of Ireland finance spokesperson Eddie Hobbs believes Mr McCreevy is more likely to sweeten the early exit clause on the accounts in a bid to save money in the longer term by encouraging people to leave the scheme, but added that trying to second-guess the minister was a dangerous game.