BY JOHN ELLIS, FINANCIAL ADVISOR
The new personal investment account is not the SSIA of old. Anyone who remembers the old scheme should get that straight before July 2027.
From next July, anyone over 18 who is tax-resident here and has a PPS number can open one. You can put in up to €12,000 a year, but if you don’t use the allowance, you lose it. You can take money out when you like, subject to the fund rules you have bought. There is no State top-up. The old scheme gave you €1 for every €4 you saved. That was a big part of its appeal. This one has no such incentive.
The tax treatment looks good. There is no capital gains tax, no tax on dividends and no exit tax. The eight-year deemed disposal that catches people investing in funds and ETFs is gone, and the provider handles the tax return.
But there is a catch. Once the fund goes over €50,000, a 1% annual levy applies to the amount above that figure. A couple could each have €50,000 before the levy kicks in, giving them €100,000 between them. That €50,000 is a lifetime threshold, not an allowance that resets every year.
The levy is the part I would look at closely. It applies in good years and bad ones. If your fund finishes the year at €56,000, you owe €60. If it then falls to €53,000 the following year, you still owe €30, even though you have lost money.
There are limits on what you can hold. No cash, no crypto and no derivatives. What is in: listed shares, bonds and exchange-traded funds. Banks and insurers are expected to sell straightforward products through an app, with fees hopefully below 0.5% a year. You will have high, medium or low risk options. Tick a box. That may get someone started, but it is not the same as proper financial advice.
Half a percent costs €100 a year on €20,000. At 1% that becomes €200. On €50,000 the gap builds over time, because the charge comes off the whole fund every year. Want someone to go through your circumstances, rather than pick an option on a screen? Expect more than 1%, sometimes closer to 1.5%. For many people, that means making the decisions themselves and hoping they have got them right.
It must beat a bank account after tax and fees. Demand deposits remain poor. A notice account might pay 2 or 3%, but DIRT takes a third. The Stoxx Europe 600 averaged about 8% a year over 20 years, and fell 12% in 2022. A long-term average is less comforting if you need the money in a bad year. Anyone who bought Eircom in 1999 will know that markets do not always deliver what people expect.
The €12,000 cap seems cautious. I suspect the banks had a hand in that. They will not be keen to see money leave. I wouldn’t put the rainy-day money here. That needs to always be available for emergencies. Nor should you open one before the pension is sorted. Pension tax relief remains one of the strongest incentives available, and it deserves your attention first.
For money you can leave alone for years, and can afford to see fall in value, the account could make sense. It may suit people who have already dealt with the basics. But it is an investment account, not a savings account, and the distinction matters.
The consumer watchdog has welcomed the scheme. That is fine, but remember nobody should see the word State and assume their money is protected. The warnings that investments can fall as well as rise are there for a reason.
They may be the least exciting part of the advertising, but they are the most important.
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