The markets are reviving and those investors who opted for the equity SSIA could be smiling all the way to the bank, writes Laura Slattery.

Financial institutions are reporting an increase in the number of Special Savings Incentive Account (SSIA) holders who are topping up their monthly contributions.

Equity SSIA customers who saw their account balances dip alarmingly into the red due to falling stock markets are now re-examining their investments as markets recover.

SSIA holders are guaranteed a 25 per cent Government bonus on their contributions - €1 for every €4 invested up to a maximum monthly payment of €254.

On the first anniversary of the scheme's closure last April, however, some financial institutions admitted that for equity SSIA customers this Government bonus had effectively been wiped out by negative investment performance during the first few months of the scheme.

Irish Life now says there has been a substantial increase in the numbers of equity SSIA customers contacting the company to bring their contributions up to the maximum allowed.

Irish Life has 50,000 equity SSIA customers. About 30,000 or 60 per cent of these were already paying the maximum contribution of €254.

From January to the end of September 2003, 1,500 customers increased their contributions.

Then in October, Irish Life wrote to customers reminding them of the Government guarantee: some 2,000 customers brought their contributions up to the maximum as a result.

Ms Dervla Tomlin, general manager of marketing for Irish Life (Retail), said the returns on over 90 per cent of equity SSIA customers' accounts were now positive.

"Markets are obviously doing better," she said. "The 25 per cent contribution from Government is just a fabulous offer and the closer you are to the maximum, the more you can benefit from it."

According to another provider, Canada Life, around 10 per cent of SSIA holders topped up their contributions during 2003.

This was in addition to the customers who raced to increase contributions in November 2002, when rumours circulated that the Minister for Finance was to announce a cap on contributions in the Budget in order to limit the cost of the scheme to the Exchequer.

Many equity SSIAs are now breaking even, according to Ms Brenda Dunne, finance director of Canada Life. Some accounts, such as those heavily weighted in Irish equities, were in profit, she said.

Performance over the early stages of equity SSIAs is not as important as it is in the late stages, because the fund is relatively small.

"It is the growth over the last couple of years that really counts because that is when the bulk of the money is in play," said Ms Dunne.

More investors may be tempted to increase their contributions to the maximum as they move closer to the maturity date of their SSIA.

Some investors are set to recoup the Government's contribution in as little as just over two years, Ms Dunne noted. "It's money-for-nothing and shouldn't be overlooked."

EBS Building Society also said more money had flowed into SSIAs during 2003 than had been anticipated, however most of the extra money was put on deposit rather than exposed to the stock market.

EBS was the only financial institution to market an SSIA that allowed people to split their investment between equities and a variable-rate cash deposit with a price promise.

"If people were contributing €200, they would say 'I'll put in another €54 on the cash side'," said Ms Sarah Loftus, head of EBS savings and investments.

Other providers have not reported any rush to increase contributions, but some have documented a rising number of inquiries.

Mr Martin Nolan, managing director of Hibernian Investment Managers, said a great deal of its SSIAs were initially taken out with the €254 maximum as the monthly contribution, so there was "less scope" to increase contributions.

"SSIA investors are at least level now and possibly ahead depending on the equity mix that they chose," Mr Nolan said.

Since the first anniversary of the scheme's closure, markets are up by 16 per cent, he added.

The fact that SSIAs are a drip-feed monthly premium product rather than a lump sum investment has turned out to be "quite beneficial".

"Markets have fallen by up to 35 per cent from the beginning of the scheme in 2001 and by about 30 per cent from April 2002, but although that is true of equities, it does not reflect the funds of investors who are paying in increments every month," Mr Nolan said.

"The first five to 12 contributions may be underwater, but that is all."

Figures from Eagle Star show that people who took out equity SSIAs just before the April 30th, 2002 deadline are enjoying a superior rate of return to those who opened an account at the earliest possible opportunity.

An investor in Eagle Star's 5 Star 5 fund who has made 20 monthly contributions of €254 since a start date of May 1st, 2002, had paid a total of €5,080 into the SSIA by the end of 2003.

The Government bonus on these contributions amounts to €1,270, bringing the total contributions to €6,350.

The value of such a fund stood at €6,816 as of the end of December.

This represents a gain of 34.2 per cent on the investor's contributions or a gain of 7.3 per cent on the total contributions, when the Government bonus is included.

However, a maximum-contribution investor who opened the SSIA a year earlier and has made 32 contributions has benefited from a much lower rate of return because more of their money suffered from the effects of the bear market for longer.

The gain on this investor's contributions stood at 29.1 per cent at the end of 2003. Most of this return is thanks to the Government's bonus. The gain on the total contributions after over 2½ years is just 3.3 per cent.

Figures from EBS Building Society show a similar pattern.

As of the end of 2003, the gain for an "early" maximum-contribution investor in its balanced fund stood at 1.63 per cent compared with 5.86 per cent for a last-minute investor who paid their first contribution in April 2002.

On EBS's growth fund, the rate of return ranges from 0.77 per cent to 6.42 per cent.

Both Eagle Star and EBS say their most popular equity SSIA funds have made further gains in January 2004.

A May 2003 report from actuarial consultants Life Strategies indicated that savers who had opted for fixed-rate deposit SSIAs were on course to receive better returns than either variable-rate deposit SSIA holders or those who had taken the plunge with equities.

However, last week Mr Denis Casey, chief executive of Irish Life (Retail), said the company believed that at the end of the five years "the smart bet" will have been on equity SSIAs.