The Government hopes its new tax incentivised Personal Investment Account will encourage Irish households to move some of their savings from deposits into capital markets investments. But will a Swedish-style model change how people save, and who stands to benefit most?
Irish people are enthusiastic savers but considerably more cautious when it comes to investing. Now the Government wants to encourage more people to put some of those savings into investments offering the potential for better long-term returns.
Its proposed new Personal Investment Account is designed to make investing simpler and more accessible for ordinary savers. The Government has looked to developments elsewhere, including Sweden’s widely used ISK investment account, as it considers how the Irish system should work.
The broad shape of the scheme is now emerging. There will be a tax-free threshold, with a low flat annual tax applying to the value of an account above that level. Savers will be able to invest in assets including listed shares, bonds and investment funds, while there will be no minimum contribution or lock-in period. Providers will handle the tax administration, and the existing deemed disposal regime will not apply to investments held within the account.
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But some of the details that will ultimately determine how attractive the scheme remains are unknown. The Government has yet to reveal the tax-free threshold, annual contribution limit or rate of tax. Those figures are due to be announced in Budget 2027.
Irish households are excellent savers but not as focused on investing, says Carol Meehan, director of everyday banking, Bank of Ireland. “There is currently no straightforward, tax-advantaged way for an ordinary person in Ireland to invest outside their pension.
“Nearly every comparable country has one, whether that’s the ISA in the UK or the ISK in Sweden and the results are clear in these countries. The launch of ISAs here is about giving people a better route to long-term financial security and resilience.”
There are signs of change, however, says Tara McIndoe-Calder, senior research office, ESRI. “An increasing share of savings flowed into financial assets between 2020 and 2024, while the proportion going into less liquid housing wealth declined. Much of these additional saving flows are going into voluntary pensions as well as riskier financial assets,” she says.
Participation in riskier financial assets and private pensions has increased across the income distribution, McIndoe-Calder says, consistent with income growth facilitating higher rates of saving and broader household wealth portfolios.
About 16 per cent of households held voluntary pension products in 2020, up from 10 per cent in 2013, McIndoe-Calder says. However, nearly a third of households in the top 20 per cent of the income distribution held them, compared with about 5 per cent of those in the bottom 40 per cent.
Evidence from other countries suggests that, at the margin, the new product may not substantially alter people’s behaviour, McIndoe-Calder says.
She says the evidence suggests households hold a large share of their savings as liquid deposits for specific reasons, including providing for unexpected events, buying a home and planning intergenerational transfers. Precautionary motives are also increasingly being given as a reason for saving in Ireland.
McIndoe-Calder says this suggests households are holding deposits for these specific motives rather than because they want to hold riskier financial assets that are unavailable to them.
While households across income, age and housing-tenure groups are saving more than a decade ago, higher-income and wealthier households still save the most. McIndoe-Calder says this suggests a risk that the new scheme could benefit already high-income, higher-wealth households.
Sweden got the fundamentals right, says Meehan. “The ISK is easy to open, no holding periods, very little restrictions on what you can invest in, and tax admin is taken out of the hands of the investor. These design features are some of the reasons why the ISK has been so successful.
“But it was designed for a different environment, for Swedish citizens who were already relatively financially literate. The design works by charging a flat tax on the amount in the account above the tax-free threshold. Charging Irish investors, many of whom will never have invested before, a tax on the value of their assets, regardless of gain or loss, may seem like a fee and a new complication. So, the size of the annual contribution limit will significantly impact the attractiveness of the product.”
The lesson is to adopt the principle of simplicity but design the scheme based on what’s right for Irish people, Meehan says.
McIndoe-Calder suggests replicating the design of existing private pension products but allowing savers to access their money before retirement.
“For example, allowing people to save out of gross income into a new savings product, with tax relief at the individual’s marginal rate, allows the asset to accumulate tax-free, and then tax withdrawals at the taxpayer’s marginal rate,” she says.
Unlike pensions, these products could be drawn down at any point.
“This type of product would get the economics broadly right, taxing spending similarly regardless of when the spending occurs, and would be more equitable, as well as keeping the product simple and more consistent with existing tax-favourable savings products,” McIndoe-Calder concludes.
