Time for savers to become investors

The issue appears, in part, to be genuine lack of understanding. A survey by Unio Wealth Management found that almost half of adults in Ireland are unaware that savings lose value in traditional deposit accounts, while 40% of respondents admitted they ‘don’t know enough about investing’ and 23% said they find investing ‘too complicated’. Among higher-income households, that figure rose to 31%.

Put savings to work

There is more to the story than inertia or complacency. Oliver Browne, accounting lecturer at Cork University Business School, says that ‘Ireland’s record-breaking savings levels mask deeper structural issues’ and argues that ‘the lack of accessible, risk-moderated investment options exacerbates the issue. Ireland has no equivalent to the UK’s tax-efficient individual savings accounts, making it harder for ordinary savers to grow their wealth.’

In February, Minister for Finance Simon Harris announced plans to address this, proposing the introduction of a new Personal Investment Account (PIA) as a mechanism to attract many of the billions currently sitting in deposit accounts and putting them to work in the economy. Speaking at the first Annual Savings and Investment Forum in March, Harris said that the development of a PIA framework ‘has the potential to be transformative by making investing more accessible, more transparent and more rewarding for people right across this country’.

The announcement fits within a broader economic and political push around investment in the EU. The bloc’s relatively tepid economic performance over the past decade, compared with the US in particular, has been linked to the lack of investment capital readily available in the States. That, in turn, connects to a completely different mindset around the individual as investor.

In the US, over 60% of households own stocks directly or through retirement funds. In the EU, that figure is around 20% and varies widely – as high as 45% in Sweden and as low as 2% in Ireland. Ireland is also only the tip of the iceberg when it comes to the personal savings issue; the amount held in bank deposits across the entire EU may be as high as €10 trillion.

Speaking at the same event as the minister, Central Bank governor Gabriel Makhlouf noted that ‘only a fraction of EU household wealth is held directly in capital markets instruments. We need strong capital markets to complement a strong banking sector in financing a more productive and competitive Europe.’

Sweden’s approach

PIAs could be up and running as early as next year and full details are expected to be announced in Budget 2027. Early indications suggest that the scheme will be closely modelled on Sweden’s Investeringssparkonto (ISK). Introduced in 2012, the ISK has proved highly popular at home and abroad, lauded by the European Commission as the model for other countries to follow.

Through an ISK account, individuals can invest in stocks, funds and exchange-traded funds (ETFs) without paying capital gains or dividend taxes on individual transactions. Income or gains arising from investments up to around €26,000 are tax free.

While this approach would mark a step forward, not everyone is convinced that it will be transformative. Firstly, there remain significant structural issues. Writing in The Irish Times, Cliff Taylor notes that ‘Sweden has a developed stock market, a long-term investment culture and a special growth sector for smaller local companies, allowing some fund money to go here.’ In Ireland, ‘the family home – heavily tax incentivised – is the key longer-term investment’.

There is also the enduring question of financial literacy. The BPFI has indicated its support for PIAs, with CEO Brian Hayes arguing that ‘€2bn to €7bn could be invested in the first year alone if the scheme is designed in a simple, accessible and attractive way’. (See boxout for key recommendations.)

However, current offers of no-risk higher-interest savings accounts by the banking sector have largely failed to induce a change in behaviour. The Unio survey highlighted the extent of the current ‘advice gap’, finding that 2.6 million people in the country had not accessed financial advice in more than two years.

All of this suggests, in Taylor words, that inculcating a market investment culture in Ireland ‘will not be easy – and it certainly will not be quick’.

Tax-base hole

There are other concerns around the proposals. Speaking to the Oireachtas financial committee in May, some economists warned of PIAs benefiting the already wealthy and leaving those on lower incomes behind. Enda Hargaden, assistant professor at University College Dublin’s School of Economics, told the committee the scheme could result in ‘another hole in our tax base’ and warned that ‘the State should be reducing these holes in the bucket, not adding entirely new ones’.

Barra Roantree, assistant professor in economics at Trinity College,also told the assembled politicians that following the Swedish model ‘would bestow the biggest tax break on investments with the highest returns’, something he said was ‘very difficult to justify in economic terms’.  Both Hargaden and Roantree noted that while reform was needed, the new approach should not worsen existing inequality.

Others take a more positive view. ‘Giving Irish consumers increased options for their savings other than low-interest bank deposits stands to be a win-win: they protect and grow their wealth while more capital is channelled to Irish businesses,’ chief economist of the Institute of International and European Affairs (IIEA) Dan O’Brien stated as the IIEA issued a report on investment accounts in April. The thinktank shares the BPFI’s view that simplicity and ease of access are fundamental to PIAs being a success.

There seems little doubt that a well-thought-out scheme will have an impact with a sizeable cohort of savers. Whether PIAs can effectively slim down the country’s bloated deposit accounts is another matter.