#306: Ireland’s New Investment Scheme Explained

0:00Simon Harris:K-pop Demon Hunters, Saja Boys Breakfast Meal and Huntrix Meal have just dropped at McDonald's. They're calling this a battle for the fans. What do you say to that, Rumi? It's not a battle. So glad the Saja Boys could take breakfast and give our meal the rest of the day. It is an honor to share. No, it's our honor. It is our larger honor. No, really. Stop. You can really feel the respect in this battle. Pick a meal to pick a side. Ba-da-ba-ba-ba. And participate in McDonald's while supplies last. like three percent inflation a year when i start to show people the you know the compounding negative impact of inflation on purchasing power which is it's death by a thousand cuts they don't see it happening every day they don't go in and look at their deposits if the banks actually showed the real value dropping they'd be out like a flash but you don't see that they don't feel it whereas they see news in the stock market every day uh and they see it as being volatile but what what What they don't ever do is zoom out to 10, 15 years where the stock market has doubled or tripled in value and created incredible wealth.

1:10Dave Quinn:Hi there, and welcome to another episode of Stock Club. Today, I'm joined once again by Dave Quinn, the Managing Director of InvestWise here in Ireland, which is a holistic financial advisor. A lot of you will remember Dave from the show last year, which was one of our favorite episodes, especially for our Irish listeners. So we brought him back to discuss the big news that's happening in Ireland at the minute, which looks set to introduce a new investment and savings account as soon as next year, hopefully. So Dave, welcome back to the show. I don't think we were this ambitious of such a change last time we chatted last summer.

1:40I remember we were talking about deemed disposal and then budget 2026.

1:44Dave Quinn:It went from 41 % to 38 % and that's all we got. So this is a turn up for the books. Yeah, whoop-de-doo.

1:51Simon Harris:41 to 38 didn't get anyone too excited but it was a start but and what it really showed was i think that there is appetite in the department of finance to reform this they were just very slow to get it started they had we had gotten hints when i was talking to you last time we had gotten hints the previous budget that they were going to do something and they chickened out of it a little bit and last year they gave us a little bit of a teaser and now simon harris is all over the media and there's a lot of pr being spun around a new savings program and more comprehensive reform of the uh tax rates on investments and it's very exciting but i don't know why i'm getting sucked into it so easily because uh these things are very slow and and yeah even if they do come out with an you know what they're talking about it will be the adoption in the irish market will be slow anyway we're we're reluctant investors as a nation but it's it's very positive steps and everything that's being proposed does sound exciting so uh yeah i'm positive overall yeah very much so me as well and i think it actually

2:59Dave Quinn:do you know that this is way overshooting it but we didn't get this far in our dreams phrase in the sense of um i was expecting reform with deemed disposal and eventually eradication And then hopefully down the road, we get an ISA-like account eventually. But to bring it in straight away is huge. And I think it was probably the most important thing we could see because we are, we're sitting on the record of 170 billion in Irish current accounts, which are basically earning absolutely nothing. It's well behind the EU average when it comes to retail investment. So you mentioned why, you mentioned that Ireland is not really a country of investors.

3:37Dave Quinn:Why do you think that is? what are our trepidations from going from saving to investing?

3:43Simon Harris:I fully understand, I'm talking to people every day, why we have this reluctance. Firstly, we had no money up until the 1990s. We were a relatively poor country in EU terms. We joined the EU. The Celtic Tiger started in the early 90s and grew, and we started to create a little bit of wealth. but it was our first time as a nation having any wealth we had no experience in our families or in our education system about how to manage money so in the 2000s we know what happened we invested into the obvious things property and bank shares that's what we knew and aircom and kind of certain things that seemed obvious and easy and uh there was there wasn't a huge amount of good advice being given so people just decided well property seems like a great investment it's going up in value there's a rent i can see it it's bricks and mortar we totally understand how that works so we embraced that enthusiastically in the late in the mid 2000s and we bought bank shares because we trusted the banks and we could see them on the high street and they were paying a really good dividend and uh and their price was going up in line with property was all very correlated when look back on it but that was our initial experience of investing in ireland with the first generation who created some wealth outside to find benefit pensions and unfortunately that was far too concentrated an investment and far too leveraged and we know what happened in 2007 2008 it all came down so there was huge damage done to the psyche of the irish investor in 2008 2009 people just said well that's just way too risky property fell stock market fell it was damaged on some people lost everything if they had a lot of leverage or if they were committed to bank shares and that took we took it took a long time to recover from that damage that was done and then as we've as we've started to build wealth again now we've the younger generation the next generation they're coming through working working in tech set you know the entrepreneurial classes that are growing in ireland now their parents lost everything in that 2008 crash well some of them did not everyone obviously but um so that's their their family history of investing has been loss uh and it's a very early question i always ask new investors to come in to us is what was your parents experience of money because we often take our knowledge and understanding of money from our parents um so it's taken us a generation to recover from that first big loss and that's why we have 170 billion on deposit people are waiting for a crash so that they can buy in at the bottom of the market or they're just going to want to buy property or they're just nervous uh of loss and i totally understand why that is um and it will take probably take another generation before ireland becomes a kind of i hate to use the word sophisticated but an experienced investment nation like the Swiss or the Canadians or even the British with the success of their ISA program.

6:51Simon Harris:I wish they would teach this in schools because it would accelerate that education process, but I think we're probably going to have to go through another boom and bust cycle before we really understand how the long-term markets work and how the long-term savings and investments work. We're very good at doing it with our pensions, but not with our non-pension money. We're either too risk averse or too risk on. We don't understand the benefits of a long-term balanced sensible investment strategy and i think these new uh programs that the

7:20Dave Quinn:government are introducing will help that a lot yeah very much so and i think you talk about pensions there it's funny for a lot of people pensions are not misunderstood but just kind of overlooked if that makes sense in this sort of oh i just put my name in a pension i don't think about it yeah what is actually in your pension made up of you know most likely stocks and bonds but you don't really think about it like that it's just this pension is this overarching umbrella that money goes and it's whatever yeah but um well let's talk let's talk about the savings and investment account itself so it's not we can't give the government too much credit here because it is part of the wider eu program with the savings and investment union um and ireland is ireland is managing that from dublin or is that correct or they're they're chiefing it the new EU retail investment strategy.

8:15Dave Quinn:So that's kind of a wider initiative that is probably set up this move. Is that correct?

8:21Simon Harris:The amount of cash that is on deposits sitting in unproductive accounts is a problem across the whole of Europe. The EU see this as being unproductive and it's in some way been triggered by Trump's announcements about defense and about NATO and about support this time last year where he was saying the EU is an unproductive entity. We're slow to grow. And I think that part of the EU's response to that has been, so we have all this money sitting on deposit in unproductive accounts that needs to be invested into the markets. We need to get our capital working for us. And that helps create individual wealth, but it also creates investment for European companies that are badly in need of capital injection.

9:07Like we see the likes of Stripe

9:09Simon Harris:and the hugely successful Irish companies, they've had to go to the US to get capital.

9:13Dave Quinn:Very much so. All the major, major European tech companies have gone to the US. There are very few that have been able to create the same levels of wealth here in Europe.

9:24Simon Harris:Yeah, because Europeans are not, we're not accustomed to investing in startup companies. We're risk averse. And the Americans are washed with capital and they're absolutely dying to invest into startups and they have a much stronger equity culture, equity investment culture anyway over there.

9:47Dave Quinn:That's one of the big reasons for the divergence since the great financial crisis and the creation of wealth over there. It comes from the venture capital infrastructure in America because that's what fed all the tech boom, really. That's how there's, whatever, eight, nine, ten trillion dollar companies in the US and there's zero in Europe.

10:05Simon Harris:Yeah. all you have to see is the amount of capital leaving Europe to invest in US companies. We're like 70 % of the global stock market is now US companies. And that's just a tidal wave of capital leaving every other country and investing into the US. And that is just driving all of their economic success. And we need to get some of that back into Europe. That's what the EU authorities are trying to do with these programs at an EU level initially. And then, of course, each individual country trying to do it. Like, clearly in Ireland, the benefit for us is if they could redirect some of this cash into infrastructure and Irish company growth stories, it would be an amazing success.

10:47Simon Harris:I haven't really heard that being mentioned in these debates, and that's really disappointing. Could they create these accounts with some incentive to keep the capital in Ireland rather than it just being an ISA type product where we just invest in the S &P 500 and the country? it helps individual wealth creation, but it doesn't help the country's capital requirements all that much.

11:09Dave Quinn:Yeah, very much so. But if you're looking at the Irish public markets, there isn't an awful lot of choice for investors there. So would you go private? You're not going to incentivize companies like Flutter or Ryanair to kind of come back to the ISAC. So there is issues there where you don't really have the options in place for investors to go on the public markets and then private markets are inherently risky for retail investors so there is just a bit of a disconnect between what we would like to see and what is actually available

11:45Simon Harris:well we do we do have it we have the ntma state savings that's that is exactly it's it's a private investment like it's a state-sponsored investment but unfortunately just goes into the exchequer and it's just used for you know general spending that there being it's not beyond the realms of possibility for them to to have subsets of the state savings programs that invest into infrastructure projects or invest into you know enterprise ireland and invest into you know some entrepreneurial capital or venture capital funds that's perfectly reasonable for them to set those things up or you know state housing body that gives a return to investors and uses their capital all those things all those things are semi-private state sponsored investments they would have to give a return but we're already doing that with very low returns on state savings products and the solidarity bond and all that it would just be one step up from that where it's targeted green energy funds and uh you know i think some of the some of this capital injection could go into that um but i haven't haven't seen it being mentioned that that would be that's that's

12:55Dave Quinn:a few years down the line i imagine yeah but i hopefully this does this lays the groundwork for initiatives like that to come in uh so let's let's talk kind of let's talk roadmap first so all the talk seems to be this is going to be kind of litigated over this year and we'll hopefully come in and budget 2027 and people will be able to invest next year if everything goes right is Is that fair to say?

13:19Simon Harris:Oh, yeah. I'd be surprised if it doesn't happen in the first half of next year. And it will be provided by the banks and the insurance companies and the possibly Revolut and the online platforms will offer it as well. Their barrier will be the tax, managing the tax on it. They don't like doing that kind of manual administration work.

13:44Dave Quinn:Sorry, I don't want to cut across it, it's worth pointing out that simon harris one of his four key initiatives was that the tax would be administered by whoever's controlling the account it's going to make

13:55Simon Harris:it as easy as possible for investors tax-wise yeah so the like do you want to go through the details of what we think we think it would look like uh or yeah yeah let's let's break it down

14:06Dave Quinn:because i want to talk what the accounts will look like what they hold how the tax will be administered and then after that i think we need to discuss the swedish model which seems to be as of now the blueprint for what they want to do but let's talk uh what the council looked like

14:22Simon Harris:first yeah so um i like i don't know how many of your listeners will remember the ssia program but it was a kind of state supported savings plan which was heavily promoted by the government but administered by the banks and the insurance companies so all the life insurance companies would probably have a savings product. The banks definitely will, and maybe some of the online platforms. And the intention will be that you'll be able to put an amount of money into this account monthly or smaller lump sums. And the growth on it will be either tax-free or with a very low annual tax rate. And the convenience of it will be that you will just make your monthly direct debit or your lump sums into an insurance company investment product you can pick stocks and bonds and or maybe cash you'll have some choices on what you invest into and the growth will be tax-free in theory um as opposed to at the moment where you do it and the growth is taxed at 38 for the insurance company products uh with a deemed disposal every eight years so it'll be administered by the insurance company you won't have to do any tax returns that will all be done at source uh so you put the money in take your money out uh without having to do tax calculations now that's where we get into the nitty-gritty of

15:39Dave Quinn:how that will actually that's where we have to speculate that's the headline um the swedish

15:47Simon Harris:model which is the one simon harris has suggested we are going to match you're up on up until last year there was no tax-free limit on it but now they've changed it and it's about 28 000 euros the first 28 000 euros of the account is tax-free um and then from then on they charge a tax an annual tax flat an annual flat tax charge which is a third of the government borrowing rate so that sounds complicated but it's effectively just over one percent so they will charge one percent of the full balance of the account every year like it like a levy really uh it's a it's a flat tax and then that's that's all they charge and it just rolls along you pay that tax every year and your dividends, your interest and your capital gain are tax-free beyond that.

16:33Dave Quinn:It's worth discussing that from a political perspective because I've already seen pushback from, I think it was the SOC Dems. Yeah. Talking about this being a tax break for the rich.

16:44Simon Harris:Yeah.

16:44Dave Quinn:I think the Swedish model is a very, very good way of doing this from a political perspective because for lower earners, this is almost a tax-free account. and as you build it up, it becomes incremental in terms of the portion. But for a huge account, that 1 % could make the difference. And this is why I believe it's so politically astute because it's actually disproportionately affecting larger accounts than smaller accounts.

17:13Simon Harris:Yeah, and they're very clearly not looking at the UK ISA model for that reason. In the ISA model of the UK, you can put 20 grand a year into your account and wealthier investors would have just done a lump sum every April before their tax return of 20 grand. And the growth on that 20 grand is tax-free forever. There's 5 ,000 millionaire ISA accounts in the UK. So I think they see that the Swedish model as being a little bit more democratic and a bit more tilted, as you say, towards the smaller monthly savings type account because it will take a lot of people quite a long time to get to 28 grand if that's the figure they pick.

17:51Simon Harris:and there isn't as much of an opportunity to make a big annual payment in which would suit the the higher earners in the economy so it is clever um the there is there is some downsides to that in that if the funds fall or we have a prolonged bear market like we had from 08 to 2012 they still take that one percent tax every year even if the account value is down so that has caused some criticism in sweden but overall it's been a massive success over there it is seen as the savings account of choice for most of the Swedish population. Even the higher earners still like using it.

18:32Simon Harris:They've had a lot of flexibility in what you can invest in and how you can set it up, the providers you can use. If we follow their model, it will be a big success here as well. I would have liked to have seen them do it more on the UK ISA model, but politics gets in the way of these things. and I'm just delighted they're doing something.

19:20Dave Quinn:Yeah, very much so. Watch now and the devil's in the detail with the executions. They'll put the tax-free limit at 1 ,270 again and everyone will lose their minds.

19:34Dave Quinn:But this is where we can only speculate because we don't have the full details. We've had a few questions in from listeners, Sean, as well. I'm going to call you out because you have a few great questions. I think we've covered some of them. But how would it affect, say stocks you already own would you be able to transfer them into your tax-free account from

19:53Simon Harris:there probably not i would know and i'll tell you why because it's highly unlikely that these are these these accounts are going to be standalone accounts managed and the providers are going to want to keep it very simple from the tax side so in specie transfers of existing holdings in won't be allowed the question is will you will any provider allow direct stocks at all in these accounts will the stockbrokers and the online platforms allow it i think that's uh they probably will because the amount of money that's potentially going to be raised in this scheme like you know if you look at revolut you'd have to expect they're going to go chasing after this aggressively but who will who will allow you to buy direct stocks fractional shares and who will allow you to transfer existing holdings in was you definitely won't be able to do that without a tax event anyway first you'd have to pay your cgt to get it in there won't be tax-free uh in-species transfers allowed into these accounts i'd be shocked if there is and then you mentioned revolution and

20:51Dave Quinn:this is another concern for people as well is and you've already touched on it too about the headache of the handling of the tax people have a easy setups with fintechs you know e toro or trading to another or revolut you know will these be the companies that go after this i I imagine Revolue will just because of how dominant it is in Ireland. But the others to go and try and handle all that for a small enough market.

21:17Simon Harris:They don't like doing any tax. They don't like getting involved in tax at any stage. And they would have to be doing the tax returns for thousands of small investors themselves. And that goes against their model of low cost provision of services. So I can't see them doing it initially unless there was a huge wave of the 170 billion available. I think people will be slow to take this up as well. It's not going to be suddenly half the money moves out of the banks into these accounts. It will be slow. And it goes against their model of providing load. They would have to up their fees to be able to manage the tax on these accounts because it's monthly calculations in some instances where there's contributions going in.