What is the Government saving scheme – and could it generate wealth rather than just savings?
Irish savers have done what they were always told was sensible: set money aside regularly, avoid unnecessary risk, and build up financial security over time. The problem is that this discipline has often delivered very little in return. Low deposit rates for extended periods and inflation eating into purchasing power have meant many savings balances have barely grown in real terms.
The Government is now signalling a different approach with a government saving scheme. Led by Simon Harris, plans are being developed for a new State-backed Personal Investment Account designed to help households achieve better long-term returns on their savings. The aim is not to replace traditional savings, but to make investing more straightforward, more accessible, and more tax-efficient for ordinary savers.
Why is this Government saving scheme coming about?
Irish households are estimated to hold around €170 billion in bank deposits, with a significant share of this sitting in accounts earning minimal interest.
At the same time, Ireland has lower levels of household investing compared with many other European countries. The concern from policymakers is that too much household wealth is underperforming, simply because people either find investing too complicated, too risky, or too heavily taxed.
The proposed Personal Investment Account is intended to address that gap by making investing more accessible and more attractive from a tax perspective.
How the Personal Investment Account is expected to work
While the final structure is still being developed, the broad direction is becoming clearer. The plan is for a simple investment “wrapper” to make investing more straightforward, more accessible, and more tax-efficient for ordinary savers.
Key features are likely to include:
- A simple investment account structure
Savers would be able to invest in diversified, regulated funds rather than holding cash. These would typically include equity-based or multi-asset portfolios to support long-term growth. - More favourable tax treatment
Ireland’s current investment tax rules are often seen as complex. The “deemed disposal” rule, in particular, can create tax bills even where investments have not been sold. The new scheme is expected to significantly simplify this, potentially by removing deemed disposal and applying a more straightforward tax approach. - No entry or exit penalties
Early indications suggest there will be no upfront charges or exit taxes, making it easier for savers to start, stop, or adjust contributions over time. - A long-term focus
The focus appears to be on regular investing over time rather than short-term trading. - Launch timeline
The Government aims to develop proposals for an upcoming Budget, with rollout expected thereafter.
It is important to note that this would not be a savings account with a guaranteed interest rate. Returns would depend on how the underlying investments perform.
Who is likely to benefit from a Government saving scheme?
The government saving scheme is primarily aimed at middle-income earners who have the capacity to save but have not yet started investing.
This typically includes people who:
- Save regularly but leave funds in deposit accounts
- Feel unsure where to start with investing
- Want better long-term returns but have not taken the first step into markets
In many cases, these are often households whose money is not working as efficiently as it could over the long term.
That said, it will not suit everyone. Cash still plays an essential role for short-term needs and emergency funds, while investing involves risk and needs time.
Cash versus investing: the long-term difference
One of the key drivers behind the proposal is the difference in outcomes between cash savings and long-term investing.
Historically, deposit accounts in Ireland have delivered very low returns, particularly after inflation. Diversified equity-based investments have tended to produce stronger long-term returns, although with periods of volatility.
To illustrate the difference:
Regular monthly savings
A saver contributing €500 per month over 15 years:
- Cash at 1% interest: around €96,000
- Investment at 7% average return: around €155,000
Medium-term lump sum investment
A once-off €50,000 invested over 10 years:
- Cash at 1% interest: around €55,000
- Investment at 7% average return: around €98,000
This shows the power of compounding. However, they also come with an important warning: investment returns are not guaranteed, and values can fall as well as rise.
Why many people still prefer cash
Even with these figures, many Irish savers still prefer cash. There are three main reasons for this:
- First, risk perception
Many people associate investing with potential loss, particularly following past market downturns.
- Second, tax complexity
Ireland’s investment tax system is widely viewed as complicated and can put people off before they begin
- Third, behavioural habits
People tend to stick with what feels familiar and safe, even when alternatives may be better long-term.
The Government’s proposal is aimed at addressing the second of these barriers – simplifying tax complexities to make investing simpler and less intimidating.
The importance of impartial financial advice
While the proposed Personal Investment Account may improve access and reduce complexity, it does not remove the need for careful financial planning.
This is where impartial financial advice plays an important role.
Before moving money from cash into investments, it helps to consider:
- How long the money can stay invested
- Risk appetite
- Income and future spending plans
- Existing pension and investments
- Emergency cash needs
There is no one-size-fits-all approach that suits every saver. Some people should prioritise building cash reserves first. Others with longer time horizons may benefit from putting some money into investments.
The key is ensuring that decisions are made based on individual circumstances, rather than reacting to policy changes or market trends alone.
To Conclude
The proposed Personal Investment Account could be an important step in changing how people in Ireland save and invest. If well-executed, it could make investing easier to understand, more tax-efficient, and help more households benefit from long-term market growth.
However, it is not a replacement for sound financial planning. It is a tool, and like any tool, its effectiveness depends on how it is used.
For savers, the opportunity is clear. Better systems may soon be available. The challenge will be deciding how, and whether, they fit into a broader, well-considered financial plan.
LHK would be happy to discuss your options with you. Book a complimentary call with our financial advisors here.
