Because people will still be earning a pittance on deposit and state savings
The Swedish equivalent of an ISA as a model for Ireland?
- Thread starter Duke of Marmalade
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Brendan Burgess
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Folks
In this thread, please discuss only the Swedish model and how it might be applied in Ireland.
It's useless having a general discussion on life generally in every thread.
In this thread, please discuss only the Swedish model and how it might be applied in Ireland.
It's useless having a general discussion on life generally in every thread.
If you are maxing out your pension contribution from an early age your pension pot will be more than enough come the time. As what to do with the rest is a classic first world problem but id suggest spend and enjoy it.
The schemes the government have and are putting in place are funded by the tax payer. There is a limit to what a government can and will do to facilitate already relatively wealthy people to shield their income or assets from the tax man.
Am I correct in saying that the Govt set three parameters in the Swedish ISK account?
(1) Tax-free amount of savings
(2) Flat tax rate on imputed income
(3) rate of imputed income = Govt borrowing rate + premium added by Govt = 2.55% + 1% in Swedish case
The size of (1) will be key, as that will drive a lot of decisions.
(1) Tax-free amount of savings
(2) Flat tax rate on imputed income
(3) rate of imputed income = Govt borrowing rate + premium added by Govt = 2.55% + 1% in Swedish case
The size of (1) will be key, as that will drive a lot of decisions.
Brendan Burgess
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There will be a flat rate tax. How they calculate it is not that relevant and it probably has not been decided.
There will be tax-free bit. Yes, that is crucial.
The ISK started as a very niche account in 2012 but really exploded 2015 onward. There was a bit of a timing thing here - there was no tax free allowance but the interest rates were really low (and thus the tax) while market returns were on a tear. The Swedish government actually introduced base rate taxes and a floor in 2016 (and raised it in 2018) given the low interest rate environment.
I think that this product being introduced in a potentially high(er) interest rate environment (if that is how they do indeed set the tax) with potentially lower returns will mean that a tax free allowance of some description will be required to get the thing off the ground.
The other thing Sweden reports is that the removal of friction - not having to make tax returns proactively for example, and the ability to set up an ISK account in your banks smartphone app - was key to success.
podgerodge
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You only quoted me saying "why doesn't he just eliminate DIRT tomorrow and increase the return on State Savings?".
The preceding part of my question outlined that Simon's stated concern is that "too much of people's hard-earned savings are remaining in low-yield deposits, where inflation can erode value over time".
Eliminating DIRT and raising State Savings returns would both significantly improve the problem he says he is trying to address, at least for the many people that have deposits in higher interest accounts, be they fixed deposits with the main banks, and on-demand with the likes of Revolut, and fixed with State Savings.
The returns might just about match inflation but would address his stated concern.
Instead, he's addressing his stated concern by encouraging savers to place currently deposit guaranteed funds into investment products carrying a degree of risk, and with no guarantee scheme.
I don't know the breakdown of who has most of the current €170bn on deposit at barely above zero rates, but seemingly it's a lot of folks.
If they can't be bothered to treble their interest by shopping around, whilst maintaining a €100k deposit guarantee, why would they move their money into a zero deposit guarantee arrangement? Perhaps if they were fed the story that this is a "Savings scheme" with a great tax let off, rather than being told it's an investment carrying risk. Which is what they are being told at the moment.
I'm not saying there aren't loads of merits to the new scheme, for the right audience, chasing greater returns for their investments. And I know not many on here agree with me.
But I believe that luring the uneducated depositor into this scheme under the guise of it being a savings scheme, when it is not, is dubious. I'm surprised the Central Bank, with it's (not very much used) consumer protection hat on, appears to be jumping on his bandwagon.