SSIA

SAVERS who were brave enough to take a chance on the investment markets have been rewarded with higher returns than those who played safe with deposit accounts.

However, there is a sting in the tail.

Some investment funds are so swollen with SSIA lolly that they face a bit of a problem if it is all taken out at once.

Normally money that goes out of funds is replaced by money coming in. And so when someone wants their dosh, there's no need to sell off assets. But in the case of SSIAs maturing at the rate of 2bn every month, the story is somewhat different.

Several institutions have announced that a once-off exit charge has been triggered by the large amount of SSIA money flowing out. And it can be as much as nearly 3% of your windfall . . . or 600 in the case of a 20,000 fund.

What should investors do about this? We asked some key players.

"To avoid any potential charge, I would advise all policy-holders to defer their maturity date, " said Gerard Sheehy, financial consultant, whose website is PRSA. ie "The existing charges on SSIA products are pretty keen and people should continue these same plans as the majority are open-ended contracts."

Another industry insider said he would be inclined to keep the money on board . . . if he didn't need it for his wedding!

However, Brendan Johnston, head of pensions with Eagle Star, warned of a possible downside to this approach.

"Investors could potentially avoid the costs if they wait until normal cash flows resume and companies can match off buyers and sellers again, but with so much SSIA money maturing it will be difficult to predict now when normal cash flows will resume. And of course any fall in the underlying assets while the client waits could be potentially much larger than the dealing cost effect."

He said the phenomenon of price changes for mass withdrawals has always been an accepted feature of the market, although he stressed that Eagle Star has not yet introduced it.

Asked about how much of an impact that exit repricing would have, he said it "depends very much on the fund. For bond funds the costs would be very small and for equities the costs will depend on such items as stamp duty and typically amount to about 1% ( 200 for a 20,000 fund)".

Adviser Liam Ferguson of www. ferga. com urged anyone who is definitely cashing in at the maturity of their SSIA to switch to cash immediately, unless their own SSIA provider has already imposed a penalty of some sort.

"Otherwise they should consider deferring the encashment of their SSIA until their fund has been replenished, " he said.

John Geraghty, CEO of www. labrokers. ie, agreed.

"If you need the proceeds of the policy at maturity or if the company you are with (such as Ark, EBS, Hibernian) has already imposed the adjustment then there is nothing one can do, " he said.

"If you can afford to sit it out a while then you could opt to roll over your SSIA and continue for a longer period of time."

Or if you have your SSIA with a company that hasn't imposed an adjustment then you could move quickly to avoid it . . . and hope that too many other people don't do the same, thereby triggering exit charges!

"It may not be too late to switch into their [your institution's] cash fund as these have not been affected by any adjustments so far, " Geraghty said.

He doesn't have a problem with the practice of penalising mass withdrawals but said "there is a right and a wrong way to approach things. The wrong way is to make an adjustment and hope no one notices".

Institutions that have already come clean and admitted they will be repricing shouldn't be lambasted ahead of those that have avoided or clouded the issue about what they intend to do, he said.

"There is nothing wrong with what they did as it's covered in the 'small print' but it wasn't communicated to everyone. Naturally they wouldn't tip off anyone that this was going to happen or else people would have switched quickly to cash, but after they did I don't think it would be unreasonable to have expected them to have written to all concerned