Q&A

Marsh & McLennan: I have been sending 30 per cent of my salary to Marsh & McLennan for the last 18 months in the hope of a good pay-out on retirement in less than four years' time. Even with the tax advantage, that is an onerous commitment.

If I had read the reports of the shenanigans of the parent company, prior to my meeting with the Marsh rep way back then, he would have got "Bata 'gus bóthar".

I realise that you are not a help desk and nor can you comment on any particular case, but do you think that I have cause for concern?

Mr T.J., Kerry

As you say, 30 per cent of your salary is a considerable investment at any time. However, I doubt it is going to Marsh & McLennan, which essentially operates here as an investment intermediary.

Your funds are in all likelihood going through Marsh to another company.

As you say, Marsh would have struggled to garner business on the back of the sort of publicity it has recently received following the decision by the New York Attorney General Mr Eliot Spitzer to take legal action against the company for allegedly ripping off customers.

However, there is no suggestion that I have seen relating to alleged misdeeds by the company on the pension investment side.

Most of Marsh's woes have related to "bid rigging" on other forms of insurance, such as liability cover, to corporate rather than private customers.

Frankly, it probably would not have been worth the company's while to take the risks involved for the relatively small amounts involved in individual retail investments - notwithstanding the fact that your contributions represent anything other than a "relatively small amount" to you personally.

However, it would certainly do you no harm to write formally to the broker and seek assurances that the sort of behaviour complained of in the US case is not applicable to your investment.

As you say, 30 per cent of your salary is not an insignificant matter.

SSIAs and break fees: Are all banks charging break fees if you want to increase the amount you are paying into your SSIA? I was recently told by ACC that I would have to pay a break fee of 79.87 if I wanted to change the amount I am currently depositing in my SSIA fixed account from €100 to €200.

If I wanted to increase the amount from €100 to €250 monthly, the break fee would be €118.60.

Why the difference in break fee charges? Surely the transaction the bank would have to do would be similar for either amount. Are all banks charging this fee (I presume they are allowed to)?

My main account is not with ACC if that makes a difference. Is there any way to avoid having to pay this fee? Both amounts seem quite excessive for what I consider a relatively easy transaction.

ACC says it is charging this fee because I am breaking my original contract.

Ms B.O'H., Dublin

I cannot say for certain whether all Special Savings Incentive Account (SSIA) scheme providers will charge break fees in a situation such as yours but it wouldn't surprise me. The key point is that you are looking to alter a fixed interest account.

There seems to be a bit of confusion about the basis of the charge, probably down to the fact that it was poorly explained to you by the people to whom you spoke.

The break fee is not a charge related to the work involved for bank staff in changing the amount you want to pay into the account.

Rather, it is a charge relating to the amount it will cost the bank to meet the interest on your payments.

When the bank told you that you were breaking a contract, that is entirely correct. At the time the SSIA scheme was launched, ACC was offering 4.5 per cent interest - among the most attractive fixed rates for the five-year term.

Clearly, those rates reflected the bank's view of where interest rates would be going over the period of the savings scheme. Ideally, from their point of view, they will set a rate that is fractionally below the average variable interest rate over the period. This applies to all institutions, not just ACC.

As it happens ACC, along with everyone else offering fixed rate SSIAs, got it wrong, with the result that the institutions are now paying interest on these accounts that far exceeds what they would be paying for equivalent accounts that are based on variable interest rates.

When you contracted at the outset to pay €100 a month into the account at the prevailing fixed rate, ACC would have made provisions for that.

However, if you now look to increase that amount, it will have to find the money to pay you interest.

No provision has been made for that, and it will effectively be paying you more than it can secure those funds at.

The difference in the respective break fees relates to the cost to the bank of funding different levels of increased contributions.

If you look back at the contract you signed when you opened the SSIA, you will, I am assured, find details of the break fee arrangements set out.

If you had a variable interest SSIA, there would be no problem and no charge in moving the monthly payments up or down.

Indeed, even if you wanted to reduce the amount you were paying into the fixed rate account, ACC would probably not charge you a break fee - even though they would be entitled to do so - because the figures would work in its favour.

The fact that you do not otherwise bank with ACC has no bearing on its decision to enforce a break fee.

Can you avoid the fee?

No, at least not if you want to increase the amount you are contributing to the account. What you need to do is weigh it up in the context of the longer-term benefit to you.

On the figures provided, an increase of €100 a month will incur a break fee of €79.87 and a monthly rise of €150 involves a break fee of €118.60.

Leaving aside the interest accruing, the 25 per cent contribution from Government coffers on top of your own contribution will see you cover the break fee on either amount in less than four months.

As such, it seems to make sense to up your contributions for the remainder of the term, provided you can afford it - and swallow your annoyance about the break fees.

[ dcoyle@irish-times.ie ]

This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.