Strong measures to prevent individuals setting up a number of special savings incentive accounts will be included in the detailed provisions for the new scheme expected within two weeks.
The rules of the scheme are expected to include measures to stop parents opening accounts in the names of their children aged over 18 years where the accounts are for the benefit of the parent.
Banks, building societies, credit unions, life assurers and investment managers are expected to launch a variety of new and adapted products on the market from the beginning of April. The Government scheme will not come into effect until May 1st.
But many financial institutions want to take early advantage of an anticipated high level of demand for the new accounts. Irish Life has already told brokers that it will accept contracts now for investments in its Saver Scope funds effective from May 1st.
Independent brokers are advising clients to wait until May before deciding on where to invest so that they can assess the full range of options available. Each individual can have only one account under the scheme, in which the Government will add £1 for every £4 saved. Savers are expected to be offered a good variety of relatively low-cost options for investing in equities or a mixture of equities, cash and other investments. In general, equity-based packages are expected to offer 100 per cent allocation of their funds to the investment from day one, management charges of 1 to 1.65 per cent per annum and a facility to switch free of charge between investment funds. Whereas some packages may involve monthly policy fees, or bid/offer spread pricing, effectively an entry charge of about 5 per cent on the funds invested, the better packages will involve transparent single pricing, no entry or exit charges and low management fees. Aberdeen Asset Managers chief executive Mr Ivan Murphy said his company would offer single price investment funds from its existing range of 24 funds. This pricing is more transparent than bid/offer range pricing, he explained. Savers will be able to switch between funds without extra charges and a roll-over facility after the five-year period may be an option, he said. The Hibernian Group intends to offer policies with single pricing, low management charges and a wide range in investment options to cater for the different risk preferences of potential savers. Mr Ian Veitch of Hibernian said guarantees may be put in place for the more cautious saver and savers will be offered the facility to switch between funds.
Product design is well advanced, he said, adding that final decisions cannot be made until the legislation is passed. Bigger volumes of business will make lower management charges possible, he said.
Banks are expected to offer at least three options. Mr Hugh O'Regan of AIB said that while a number of possibilities were still being considered, preliminary indications are that the bank will offer three types of account: deposit accounts for people who want to keep their savings in cash; a managed fund for savers interested in investing in equities; and an account which will allow a mixture of cash and equities. Financial institutions will be expected to introduce safeguards to prevent churning which happens when a salesperson advises a customer to cancel one account and open a new one in order to generate extra commission. Churning is bad for customers where the changeover does not improve their financial position.
