New Government investment accounts could generate up to €400m in fees for banks

Personal investment accounts (PIAs) could generate up to €400 million in additional fee income for banks and other providers by 2035, according to Davy Stockbrokers.

The brokerage estimated that – at peak – up to €4 billion in annual investment could flow into these accounts “although the path to this level is uncertain.”

This presented “a potentially meaningful fee opportunity for providers able to capture the flow”, it said.

Greater administrative, tax and reporting requirements in Ireland would favour “scaled providers” such as banks and life assurance companies, Davy said. Online brokers are also expected to offer accounts.

“Applying a range of fee outcomes to our annual flow assumptions implies €100-€400 million of annual fee income by 2035, with the opportunity building as PIA assets accumulate,” it said.

“The onboarding and administrative requirements for PIAs should favour established providers over smaller, more niche providers, resulting in the Irish banks as natural beneficiaries,” Davy said.

Authors Thomas Ryan and Diarmaid Sheridan of Davy said the estimate of cumulative fees was based on an assumption that providers would charge 0.25-1 per cent of the account balance in annual fees.

They said the research was based on a number of assumptions about the number of people who might invest and their likely level of investment, which were based on existing savings and earnings data.

The new State-sponsored investment accounts, launched by Minister for Finance Simon Harris in the budget, will allow individuals to invest up to €12,000 a year in an account.

The accounts, which will be launched in July next year, will have a tax-free threshold of €50,000 after which a flat rate of 1 per cent will be charged.

The aim is to incentivise Irish savers to move some of the €170 billion held in low-interest-bearing deposit accounts back into capital markets.

Harris has described this money as “sitting idle”.

Davy said the scheme would “allow for a meaningful tax advantage relative to existing investment structures.”

“Our scenario analysis implies an effective tax rate of about 6 per cent over eight years compared with about 30 per cent for comparable investment vehicles,” it said.

The brokerage said the new scheme offered “a compelling economic proposition for investors” while noting international precedent pointed to a gradual adoption, with comparable UK and Swedish schemes having limited impact on existing savings patterns.

“PIAs should provide a welcome tailwind to Irish retail investing,” it said.

“We expect adoption to be gradual with flows captured at the margin from existing alternatives,” it said.

Recently published research from life insurance and pensions company Royal London Ireland looked at how much people believe they would set aside in the proposed PIA.

It suggested as much as six in 10 adults in Ireland could invest up to €250 per month in the scheme.

It also indicated that men, on average, expect to invest more than three times as much as women, at €893 per month compared to €240.

Harris first mooted his intention to introduce a new form of consumer-friendly investment account back in February.

His department is understood to have examined similar types of accounts operating in other countries. Ultimately, it opted largely for the Swedish model despite strong industry lobbying in favour of the rival UK individual savings account model.