Friday, March 4, 2016

The Destruction of the Irish Savings Market

The Irish Government campaign to discourage people from saving must come to an end. 

Regular savers to unit linked (fund) investments have really been maltreated and hounded. Not happy with the Government 1% Levy (Tax) on every contribution to a long-term unit linked saving plan, the current Government Exit Tax on any growth on the funds is 41%. Think about that. It's HUGE.

You're trying to be prudent, saving for the future, taking a risk on your investment and you get hammered on the growth in value. It's mind-blowingly stupid and short-sighted for a Government to maintain an obscene high tax regime on long-term savings. Of course, Governments think in 5 year election cycles so having a plan that goes beyond that short term is a collective anathema.

You can currently get a 'safe' tax-free return of 25% over 10 years (this was 47.5% in 2010 when the bond was introduced) by lending money to the Government via the Solidarity Bond. To get an equivalent current return from a product with a higher 'risk' insured investment fund, the fund would have to grow by about 55%, when you take annual management charges and taxation into consideration.

If we roll the clock back over the last 10 years and look at the SuperCapp Fund with Zurich Life and the With-Profit Fund with Standard Life we can see how difficult it is to compete with a Government sponsored product.

The gross return on the Standard Life Fund over 10 years, to February 2016, is 33.07% - deduct tax @ 41% and you're left with 19.51% net. The person that sold you the product got paid, the fund manager got paid, the Government got paid, but you're left with a paltry return on investment.

The figures for the Zurich Life SuperCapp Fund are a healthier 47.54% gross and 28.05% net. 

What needs to happen is that the Government need to get rid of the levy on these products and reduce the tax rate dramatically  OR introduce a tax efficient scheme like the Individual Savings Accounts (ISAs) in the UK. These allow individuals to save/invest Stg. £15,240 per annum in a variety of tax-free products.

If this doesn't happen, regular savers will be lured back into investing in property again, as the alternatives are so unattractive.

Given the way the Government have raided pension funds in the past and the current prohibitive tax regime on savings, there would want to be some reassurances from them on keeping their mitts off any surprise attacks on savings in the future.

The best person to save for the rainy day is you. So any talk of the Government setting aside a 'rainy day fund' is just nonsense. They'll just blow it, in time.


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