Tuesday 17 January 2017

All eyes on prize bonds as public switch to risk-proof products

Safe haven for money fuels two years of record growth

Published 22/07/2010 | 05:00

WHEN you first meet Michael O'Keeffe, it appears that he may well fit the stereotype of a chairman who has been in the job a few years too many.

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A man very much at ease with himself, he is cordial, relaxed and does not appear to have the intensity or drive to head a company that runs one of the most popular state savings schemes in the country.

Once you sit and talk with Mr O'Keeffe for a short length of time, however, that notion is quickly dispelled.

An accountant by trade, he held a number of positions in the UK with, among others, 'The Sunday Times' and IBM before coming back to Ireland where he worked in the old Department of Posts and Telegraphs before becoming group financial controller of An Post. It was that role which led Mr O'Keeffe to his position as chairman of the Prize Bond Company. As well as holding that position for the last 16 years, he is also chairman of the Communication Regulator's audit committee, which, in his own words, is enough to keep the 69-year-old busy.

Today Mr O'Keeffe is a happy man. Considering he oversees the running of the prize bonds business, he has every right to be as well. On Monday the Prize Bond Company reported that 2009 was another record year after a record 2008. In the midst of the worst recession in a generation, prize bonds have been one of the few businesses to thrive in the country.

Prize bonds are an institution in Irish society. Since they began in 1957, they have reached into the corners of most homes in the country. In 1989, An Post and Fexco, an investment company based in Killorglin, Co Kerry, took over the marketing, sales and administration functions from the previous operator, Bank of Ireland.

The idea behind the product is fairly straightforward. Bonds can be bought in units worth €6.25 with a minimum purchase of four units worth €25. After a minimum holding period of three months, consumers can cash in their bonds at any time and they never lose their value -- €25 worth of bonds bought in 2010 will still be worth €25 in 2030. All prize bonds are included in a weekly prize draw, and this is the big attraction. Last year the company paid out more than €27m with nearly 6,000 prizes handed out every week.

After recording an increase in sales of more then 300pc two years ago, in 2009 sales of prize bonds jumped another 53pc to more then €175m. The prize fund now stands at more than €1.2bn -- up more than 50pc in two years.

On the face of it, the reason for this growth appears to be straightforward. In the bad times, people look for a safe haven for their money, and prize bonds provide that.

While Mr O'Keeffe agrees, he says there is more to it than that. "It's a combination of factors, really. For a start, as they are a state savings product they're very secure. We hand out almost 6,000 prizes every week so if those 6,000 people tell their family and friends that they've won, inevitably it will lead to growth. As well as those reasons, the product is unique. If you buy a raffle ticket and you don't win in the draw, you tear it up. If you buy a prize bonds, it goes into every draw until you cash it. You have the security of having your money repayable on demand but you also have the 'thrill' of being in with a chance to win a prize each week.

"One other thing that's very important at the moment is interest rates. Normally when you buy prize bonds you lose out at one level because the bonds aren't earning you interest. At the moment though, with interest rates being so low, customers are not losing anything like as much as they did in the past, so the opportunity cost is small."

While it's true that the economic circumstances of the country have undoubtedly added to the interest in prize bonds, Mr O'Keeffe has not allowed the grass to grow under the Prize Bond Company's feet. The business is constantly reviewed and changes have been made to the prize bonds structure on a regular basis.

"We have to keep an eye on the business in order to stay competitive. Like any business, we are constantly evolving as a company and as a brand. Few businesses can stay the same over 53 years and we are no exception."

The major thing the company is working on right now is making prize bonds available at point-of-sale. At the moment you fill in an application form send it off, and wait. But that will soon change.

"If you bought bonds previously, you have a customer number so you will be able to walk into a post office give your customer number, and then receive the bonds over the counter.

"We haven't decided exactly how much post office staff will be able to hand out over the counter but I think it will be around €1,500. If you've never bought bonds before, you will still have to fill in a form but you will receive the bonds there and then. We're also working on making the website more accessible and to let people check their bond holdings."

AT the same time as progressing the scheme, the Prize Bond Company has had to fight to retain its contract to run the business. Last year, the National Treasury Management Agency (NTMA), which might be best known amongst the wider population for setting up the National Asset Management Agency, granted An Post and Fexco the rights to run prize bonds for another 10 years. It's a partnership that Mr O'Keeffe is happy to maintain.

"It's good to see a private sector and public service company working well," he says.

Those targets and the relationship with the NTMA have come into sharper focus since the downturn really took hold in the economy. Although the targets look far beyond pure sales figures, the role that prize bond sales play in maintaining the national debt should not be underestimated, says Mr O'Keeffe.

"We're under no illusions that when you are talking about billions upon billions of euro, the €268m we contributed to the Exchequer last year does not seem like that big an amount.

"At the same time though, every euro that comes from prize bonds pays down the national debt and that €268m we contributed is €268m less that the Government has to raise on the international markets at much higher interest rates so we are proud of our contribution."

Over the life of prize bonds, about €1.5m remains unclaimed. That represents less than 0.3pc of the overall value of prizes awarded since the scheme began. Nevertheless the company still goes to extraordinary lengths to ensure every prize is claimed. Multiple letters are written to bondholders, all winning numbers are posted online and on TV3's Threetext as well being available on a Call Save number.

Nevertheless, there are still four prizes of about €20,000 unclaimed, one since 1991.

For the company's chief, he says he has probably one more year left as chair of the Prize Bond Company. But many expect the lure of the product to last a whole lot longer.

Irish Independent

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