Bridging the Gap: Enhancing Retail Investor Participation in Ireland through the SIU

Introduction

Households in Ireland saved 13.8% of their income in the last quarter of 2024, up from around 13.5% pre-pandemic. This increase has boosted household wealth through home purchases, bank deposits, pension savings, and debt repayment.

Most of individuals savings, roughly €178 billion at the end of 2023, are held in low-return products like cash deposits with Irish banks, credit unions, and ‘State Savings’ products. This trend is common across Europe, where up to €10 trillion sits idle in savings accounts. These funds could be better utilised through investment in capital markets, offering potentially higher returns and deploying capital to large-scale decarbonisation and defence projects. Despite its advantages, why is retail participation in capital markets among Irish citizens so low?

Non-professional investors face several obstacles that hinder broad retail market participation, including limited access to educational resources and guidance on investment strategies, uncoordinated pathways to access the market, and an unattractive tax regime.

To address these challenges and encourage retail investor participation in EU capital markets, the European Commission (“EC”) announced the Savings and Investments Union (“SIU”, “Union”), a strategy aimed at creating better financial opportunities for EU citizens by connecting savings with productive investments. Born out of the Capital Markets Union (“CMU”), an initiative to reduce fragmentation across borders and establish a single market for capital, the SIU aims to further develop these efforts into a more citizen-focused approach.

Investment Barrier: Knowledge

Retail investors in Ireland often face disadvantages due to a lack of investment knowledge, creating substantial obstacles to investing in capital markets. In 2023, a Bank of Ireland (“BOI”) survey revealed that 49% of participants rated their investment knowledge as poor, while only 28% rated it positively. This insufficient knowledge leaves many potential investors unable to make informed decisions about their savings, leading to hesitation in entering the market.

This hesitation is further heightened by a lack of confidence and misconceptions about investment. For instance, 67% of those surveyed by BOI fear losing some or all their money from investing. The Global Financial Crisis of 2007 left many distrustful, associating investment with the risk of losing their savings. However, investment portfolios can be tailored to meet investor needs and risk appetites, following a balanced approach that mitigates risk while striving for growth. By improving financial literacy and understanding diversification and risk management, investors can create portfolios that align with their financial goals.

The SIU highlights similar challenges across the EU, with only 18% of EU citizens possessing a high level of financial literacy. This indicates a significant need for educational initiatives to improve understanding of financial products and investment opportunities. The SIU proposes that by Q3 2025, the Commission adopts a financial literacy strategy aimed at empowering citizens, raising awareness, and increasing participation in capital markets. Improving financial literacy across Europe must therefore be a collaborative effort at both EU and national levels. Some member states, including Ireland, have already taken strides towards closing their financial literacy gaps, such as launching Ireland’s first National Financial Literacy Strategy.

Access and Availability

Technological Barriers

With the shift towards digital platforms, technological advancements have introduced user-friendly tools. Despite their ease of use, many Irish investors are reluctant to use these tools as they differ from traditional banking methods. Cybersecurity and fraud concern further deter investors. These technological barriers can limit access to investment resources and negatively impact decisionmaking. The SIU highlights the importance of easy-to-use investment technologies for retail investors and aims to expand these platforms across all member states.

Market Fragmentation

Market fragmentation in the EU poses a significant barrier for retail investors. Asset managers face barriers and costs due to varying regulations across member states, leading to reduced investment opportunities and increased fees for Irish citizens. This restricts cross-border investment and limits portfolio diversification. The SIU aims to address this by harmonizing legislative frameworks and leveraging technologies like Distributed Ledger Technology (“DLT”) and Artificial Intelligence (“AI”).

Taxation and Regulation

Irish taxation policies complicate the investment landscape. Despite being a hub for ETFs, Ireland imposes a high exit tax rate of 41% and the “deemed disposal” rule, which taxes unrealized profits every eight years. These high taxes and complex rules deter investment. The SIU proposes tax incentives to encourage retail investors to move their savings into capital market investments.

Liquidity Issues

The SIU aims to educate retail investors on market liquidity risks while highlighting that illiquid investments can be well-suited for certain products. Auto-enrolment and the pension market provide an excellent opportunity to facilitate illiquid investments, offering potential long-term benefits for savers.

Products Integration

Despite the strategic importance of the SIU, EFAMA has expressed concerns, suggesting member states focus on introducing tax-efficient savings accounts, like European Individual Savings Accounts (“ISAs”). To counter this and alleviate friction, the EC will base products on existing best practices.

The SIU is not a reinvention but an initiative to complement and expand existing products, including UCITS, AIFs, and pan-European personal pension products. EC President Ursula von der Leyen confirmed that EU citizens and businesses would have increased opportunities for wealth growth and easier access to capital for innovation.

By Q3 2025, this initiative aims to create an ecosystem of investment opportunities and products, including recommendations to member states for tax treatment. It also aims to facilitate an agreement on the Retail Investment Strategy (“RIS”).

By Q4 2025, the Union should issue recommendations on auto-enrolment mechanisms for pension savings, pension tracking systems, and pension dashboards. It is important to note that the rollout of auto-enrolment in Ireland has been delayed, with implementation now expected by early 2026. Despite these delays, auto-enrolment holds significant potential for both savers and the economy. For savers, it can increase participation rates, boost retirement savings, and promote financial stability post-retirement. For the economy, it can enhance financial resilience, reduce the burden on state pensions, and foster a more secure and productive workforce.

The multiple measures crafted through the SIU aim to encourage and incentivise Irish retail savers to hold more of their savings in capital-market instruments rather than in deposits. Ultimately, the SIU seeks to be an industry-wide standard for collaboration across different European jurisdictions in an evolving financing ecosystem, developing innovative capital markets to tackle current challenges (e.g. climate change) and facilitate growth in Europe. According to Draghi’s ‘The future of European competitiveness’ report, this is estimated to require approximately €750- 800 billion per annum by 2030.

Conclusion

The SIU implementation will involve both legislative and non-legislative measures, along with contributions from member states' NCAs. It requires collaboration among all stakeholders and harmonised supervision at the union level to ensure consistent practices.

From an Irish perspective, the introduction of the SIU could bolster future projects under the Irish State’s Public Private Partnerships scheme and the potential to open both Future Ireland Funds and the Ireland Strategic Investment Fund to retail investors.

By Q2 2027, the Commission plans to review the SIU and publish a mid-term progress report. However, the timeline and milestones may change due to the needs from the evolving geopolitical landscape and the general adoption rate.

The success of the SIU may be less influenced by European measures and practices and more by the instability of the US capital market. This instability could attract inward investment from outside the EU and spark renewed interest among EU citizens, making European markets a more attractive investment destination.