In Ireland, the introduction of a savings and investment account could significantly diversify the country’s wealth. Around €163 billion is sitting in deposit accounts in the country, any interest gains on which are then subject to deposit interest retention tax of 33 per cent. In addition, investments also face substantial tax treatment in Ireland with the rate on investments now moving to 38 per cent, reduced by three percentage points in October’s budget. There is also the deemed disposal rule that means an investor must pay taxes on the gains made on an investment every eight years, even if they haven’t exited their position. This is particularly problematic for investors who do not have cash available to pay that tax bill as it means they’ll likely have to sell some of their position, which has a detrimental effect on compounding interest over time.
You’ve got deposit accounts, which in reality is kind of where the vast majority of Irish household wealth sits when you take out property. But property is primarily principal residences anyway, so it’s not really wealth when you think about it.
She said there are a number of ways Ireland could explore introducing its own savings and investment account. One way is like in the UK, where people can invest some of their net pay into an account and pay no tax on those gains. Another way, she said, was to set it up in a similar way to a pension, where if someone earned €100,000 a year, they could divert €20,000 of that gross to a savings and investment account and then pay tax only on the remaining €80,000.
The majority of liquid wealth is sitting in deposit accounts, which are effectively losing money, right? Because the rates that you return on deposit accounts don’t beat inflation.
One of the key elements of the European Commission’s framework was the advancement of financial literacy alongside the introduction of such accounts. Minister Donohoe already published Ireland’s financial literacy action plan earlier this year but communicating a new product like this correctly will be critical to any success it may enjoy.
That’s really important as well because you can introduce a product, but if nobody knows about it or if they think that it’s too complex to understand and there isn’t the proper level of education around it, well then you might as well not have done it at all
One of the oddities of the Irish investment sector is the grand scale of the international fund industry, but the relatively low level of investment from the domestic population. Ireland is home to around 8,870 international funds or about six per cent of the world’s investment fund assets, with the country’s favourable tax regime, robust regulatory framework, and growing talent pool all playing a role in luring them to the country. While the introduction of a savings and investment account would undoubtedly aid Ireland’s retail investment sector, it would also help the country grow its funds sector.
I would see the widespread introduction of savings and investment accounts not just in Ireland, but across the EU, as a massive opportunity for Ireland as leading the charge as managers of those products, The way the EU commission sees this working is that I might be an Irish individual who wants to invest in ISA, but I don’t have to invest in an Irish ISA, I can invest in a German ISA if I’m looking at it and going ‘that one’s got a better return over there’. I need to be allowed to do that and do it without being kind of penalised or barriers pulled up