The Minister for Finance introduced a new
savings scheme in the Finance Act 2001. Its principal
objective is to encourage regular savings by individuals.
The main features of the scheme are as follows:
For every amount saved in the
scheme, the Exchequer will contribute to the
individual savers account an additional 25% of
that amount. This is equivalent to giving tax relief
on savings at the standard rate of income tax.
Income or gains from the savings
investment are taxed at 23% and this will be deducted
by the participating financial institutions at the
end of the five years.
The scheme commenced on 1 May 2001
and accounts must be opened before 30 April 2002 to
benefit. The Exchequer contribution will apply for a
five year period only.
Every individual, who is resident
in the State and 18 years of age or over, can save in
one of these accounts. This is so whether an
individual is married/unmarried, employed/unemployed,
or working outside the home/working in the home. Each
individual will be allowed only one account and on
opening the account will be required to supply his or
her PPSN (personal public service number) to the
financial institution concerned.
The maximum amount that an
individual can lodge to an account in any one month
will be 254(£200),
and the Exchequers contribution to the account
will be 63.50 for each 254 lodged.
The minimum amount which must be saved by an
individual in any one month, in the first year of an
account, will be 12.70(£10),
though an individual may save up to 254(£200)
maximum in any month. After the first year an
individual may save any amount in a month up to 254(£200)
over the remaining 4 year period.
Special saving incentive accounts
will be managed, on behalf of an individual saver, by
a range of bodies such as banks, building societies,
credit unions, life assurance companies and fund
managers. Exchequer contributions to each account
will be sent directly to the account manager and
added to the savings in the account. The Government
will not be operating or guaranteeing the account or
the return under them - this will be a matter between
an individual and an account manager. It will be a
matter for each individual to assess any level of
risk they wish to undertake.
It will be possible for an
individual to transfer a special saving incentive
account from one investment manager to another during
the five years.
An account can comprise
investments in deposits, quoted shares, government
securities, collective funds or life assurance
products, as determined by the account manager.
To obtain the maximum benefit from
the savings in the scheme, the savings must be left
for the full term which is five years. Where that is
the case, tax at 23% will apply only to the
difference between the total value of the assets at
that point in the account less the amounts invested
together with the Exchequer contribution. That means
that only the income or gains generated by the
investment of all moneys lodged in the account will
be liable to tax. This will be deducted at the end of
the five year period whether the funds are withdrawn
from savings or not at that point.
However, if there is an earlier
withdrawal from an account (other than on death), the
full amount withdrawn (both the savings and
investment return) will suffer tax at 23%.
An account cannot be used as
security for a loan.
The following sets out some examples of
possible benefits. It should be noted that returns are
just an assumption for the example; it will be a matter
between the financial institution what return or gain is
Joe opens an account with his preferred
account manager and decides to save 50 a month for
the five year period. Joe will save 3000 over the
five year period and the Exchequer will contribute a
further 750. If the return on investment is assumed
to be 4% per annum the return on this 3,750 saved
over a period would be of the order of 390 which
would be taxed at 23% leaving a net gain of 300.
Thus Joe would have 4,050 at the end of the five
year period for 3,000 saved, a gain of 1,050
Anne decides to open an account and save
the maximum of 200 per month. She will save
12,000 over the five year period and the Exchequer
will contribute 3000. Again assuming a 4% return
the gain on this 15,000 would be 1,564 which
would be taxed at 23% leaving a net gain of 1,204.
Thus Anne would have 16,204 at the end of the five
year period, a gain of 4,204 after tax.
The European Central Bank( ECB)
interest rate is now 3.25%( fixed on November 9 2001)
Fixed Deposit Accounts
Bank of Ireland
Association of Ireland has said that savers
should only sign up for SSIAs that guarantee that
interest will never be more than 1% below the
base rate set by the European Central Bank (ECB).
The current ECB rate is 3.25% rate.
Terms of Selection of SSIA Products
premium per month
fee per contribution
< £200, 5%
and 50/50 funds
GET MORE LIFE INFORMATION
BY CHECKING THE NAVIGATION COLUMN