Transcript generated automatically by AI and may contain errors.
Chapter 1: What is the main topic discussed in this episode?
You're listening to the Irish Times.
You have come to the right place if you've heard Simon Harris's promises to introduce a new savings and investment scheme, but still can't quite get a handle on what it means. We're breaking it down today. So by the end of this episode, you'll be up to speed.
Know if it's for you and what alternatives there are that you could take action on right now instead of waiting for a scheme that may or may not happen. I'm Aideen Finnegan, and this is Better With Money from the Irish Times.
Chapter 2: What is Simon Harris' proposed savings and investment scheme?
It goes without saying, but let me say it anyway, investing carries a risk of losing money and this episode is for information purposes only and does not constitute financial advice. I'm joined today by Kel Gallivan, qualified financial advisor, author and long-time investor and who's known online as Mrs. Smart Money HQ. Welcome back to the podcast, Kel.
It is good to be back. Actually, nice to see your face again.
And you, you were on with us before back in series one last year, and you told us all about your path to investing and people can go back and listen to that episode in full because it was riveting. And I will leave a link in the show notes. But in a nutshell, for any newbies who've joined us, why did you leave your job in medical sciences to do what you're doing today? I was naive.
I think that's the short version of it. Well, no, look, like the super short version, got caught in the recession, had ridiculous debt because negative equity and all that kind of stuff. Took a decade to get out of that. In the meantime, I had children, realised that because I'd thrown myself into work and I was a breadwinner, I wasn't seeing them.
I wanted one year out with my kids just and then put myself back out and work again. So I walked away from my 16 year career. Embarked on a no spend year where we cut our outgoings by over 27 and a half thousand euro. Oh my gosh. Yes. And during that, I opened my first ever social media account and the rest, Aideen, is history.
Well, I mean, what a history it is. And you've come to become very experienced at this because you've like 20 plus years investing. Is that right? Yes. So you're here to discuss the Minister for Finance, Simon Harris's utterings about a state savings and investment scheme.
And we don't have the full details, only what he's kind of said in the soundbites, like how he wants the squeeze middle who are putting money in the post office or the credit union or the bank account to actually make money and not lose money in relation to that.
And there's been a few dribs and drabs. And we know that he plans to unveil the scheme in October in the budget. And I guess there might be a question mark then about when it actually comes into effect. Can I just get one question out of the way first before we dive in? Do you remember Charlie McCreevy's SSIA scheme in 2001 to 2007?
Whatever you managed to save in that time, the government would top it up by 25%. So kind of like free money. Will this scheme be that?
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Chapter 3: How does this scheme differ from the SSIA scheme?
Or will it be managed by whoever is taking care of it? And if so, if the administration and the tax has been managed by the bank or the institution or whatever, well, what cost does that come at? Because you can't expect a company to take on something like this without a fee. But how high is that fee? Yeah. And then if you do put money in, do you have to leave it for a certain length of time?
Do you have access to it? And if something like that is in play, well, then are there penalties if you do take that money out? Like there's so many different questions and they're not negative questions. They're just comprehension questions to get clarity, because I think people deserve to really understand something before they put their hard earned cash into it.
I do, yeah, because exactly as you say, like this could be somebody's hard saved money for the last couple of years and they need to have full disclosure on all of this. I get a bit worried about the political side of it. You know, they're going to try and make it sound really good because they want the government to sound good.
So does that mean that people will be slightly misguided about what it means? But I saw something on your Instagram that I thought was really interesting. You were reacting to Simon Harris trumpeting the fact that there would be no capital gains tax. Yeah. And that it's like a waiter saying, oh, the pasta of the day doesn't come with marshmallows. Can you explain?
Yeah, you heard that. OK. So, yes, when I saw that headline, I was looking at it and I kind of doubted myself for a second. I was like, why is this a headline? Why is this a soundbite? Because, right, we all know we pay tax. And different types of income and different types of things are subject to different types of tax. So VAT is one and our income tax is another and USC is another.
And PRSI, we have all of these different tax and on our savings, we paid 33%. When it comes to assets, when it comes to different types of investments, we have more than one type of tax. The one people are most familiar with would be capital gains tax, and that's 33%. Now, what falls under capital gains tax are things like housing.
things like individual shares, things like cryptocurrency, a lot of the assets, even whiskey, gold, that kind of thing, they all fall under that 33%, as do some types of products such as exchange traded commodities, exchange traded notes, ETCs and ETNs. They're not really suitable for the average person investing because particularly exchange traded notes and exchange traded funds are
They're complex instruments. One is a debt instrument and one tracks commodities on futures. Oh God, I'm confused already. Exactly. So I was going, well, I never expected capital gains tax to be a thing. Why would CGT be a thing on this? Correct. My thought process and what I was expecting to hear was it's not going to be under exit tax and therefore deemed disposal.
Yes.
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Chapter 4: What are the potential benefits of the new savings scheme?
That's really good. The downside... is that the rate of return... The interest is low on it. It often doesn't even keep up with inflation. So part of me wonders, why don't they just soup that up a little bit and make it really nice for people in Ireland to save? Because we have this 150, 170 billion on deposit. Wouldn't it be nice if the government had that and they could use that?
If it's a bond, they could use that. Even I can understand that. Exactly. And just up the rate. This is my opinion on things. Yes. On the other side, Irish people do have the ability to invest. But unfortunately, the way the tax system is, it's penal and it's punitive. And complicated. And complicated. And it does not need to be.
And most people, they're scared off by that because we have been burned by investments in the past. I'm afraid to say air cum shares of people run away crying. The few of us that are brave enough to go ahead and learn the skill of investing, which is a life skill, right? It absolutely is. And I shouldn't say afraid. I think you should embrace it anyway, but understand what you're doing.
the products that are available tend to be taxed really heavily and they fall under deemed disposal. And the irony is with the way Ireland is now and how we earn our money, the two main ways most Irish people grow wealth is through real estate.
And historically that worked, but it's not going to work in our current scenario when you have a whole generation that may not be able to buy a home, let alone become a real estate empire owner.
Absolutely.
And when it comes to investing, because we have what I see as an older system that leans towards real estate, you're scuppering a whole generation of actually growing money off their own back and actually taking the initiative. And I personally believe that if you did streamline the tax system,
It would be one way to democratize wealth in this country because you suddenly make investing much more straightforward, much more possible.
And over time, potentially, it's that one thing to push us over the edge to become independent and reach for financial freedom and have that security, as opposed to waiting with bated breath to see if the government comes up with this amazing one hit wonder saving scheme.
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Chapter 5: How will the new scheme be structured for investors?
100 euro in. And after a certain period of time, let's say it grows to 150. Well, you will only pay tax on the 50 euro. Right. Now, with capital gains tax, the first €1,270 per year... is tax-free. So that technically will be tax-free for you. But if you had a larger number, you could get that tax-free, but that's your 33% capital gains tax.
And it's the products that I mentioned earlier, real estate, individual shares, things like that, which aren't suitable for most people. When it comes to your exit tax and deemed disposal, there is no tax-free threshold. It is a flat 38% on all your profits. Yikes. On top of that is deemed disposal.
Wow. So you really need to be dealing with big sums of money to make it worth it. This wouldn't be for, like when you say it's unsuitable for most people, is that why?
I would still argue it is worth fighting for yourself. I would argue it is still worth learning the skill of investing because You may not have a huge amount of money now, but you don't know in time how your life will turn out. And I'm talking from experience here because I had the six figures of debt.
And when I did start investing over 20 years ago, I was the person with the 50 euro painfully trying to ring up my guy and say, look, I need to put this on. And 20 euro went on the cost of actually putting on the trade and the rest was hopefully invested. You don't have those costs have come down a huge amount now. So there are savings to be made.
from a platform, from an actual investing perspective. It is the tax system that is causing the bottleneck here.
Right, I got it. Coming up, how to start investing without waiting for the Simon Harris scheme. Kel, I'm not clear on whether you have to have a lump sum or can you pay a small amount each month? Like what type of investing is for which way of doing it?
There's no correct answer to that. Damn it. But what I would say is start where you're starting. So look, a lot of people might be in the lucky position where they have a lump sum. And I would say, do your due diligence. Please do not listen to just a random person on the internet. Like make sure you understand what you're doing and do not hand your money over to anybody.
You manage it yourself unless they're a regulated entity. Absolutely. So what I would say to people is sit down and know your money, right? before you start investing, make sure you have your savings in place. And now I know we're good at saving, but put structure on it. Have your rainy day fund, have your emergency fund, have your sinking funds. Within that, your savings can still earn money.
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Chapter 6: What are the risks associated with investing in the stock market?
Have a couple of, I don't know, prize bonds, like you said.
Yes.
But let's say I have a thousand euro today that I think let's put this somewhere that there are good odds it'll do a decent return in five years time. What should I do? Is it a case of downloading a trading platform? Is it a case of going to one of the life companies like Irish Life?
First of all, the fact that you're asking the question is brilliant. If you're at that point, guys, you're already winning. OK, that means that you have your foundations in place. And this is really important. Before you even start investing, you need those foundations in place. And I know we touched on it, but I cannot... iterate how important it is to have that.
Because if you do want to become a long-term, confident, successful investor, those savings are your foundational piece. That's the piece that's going to protect you. It's dull. It's boring. It's barely going to keep up with inflation, but it is the thing that will save you if the belly goes up or if there's a recession or something like that, or a life change or a job change or something.
You need those savings. So to bring you up to that 1000 euro and you're going, okay, this is my moment. I'm going to do something here. There are two main choices you just mentioned. You can go to a company and they can invest it for you. And that there is a simplicity in that because they will deal with the tax and they will deal with that side of things. The downside is that comes at a price.
Okay. There's a premium on that convenience.
Yeah.
Okay. And look, they are professionals. They know what they're doing and professionals deserve to get paid for the job that they're doing. So it is an absolute valid avenue to go down.
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