If Ikea made savings plans: Here’s how Simon Harris’s Swedish-style plan might work |
Are you confused about Simon Harris’s new savings plan? The lack of full details – not expected until budget day on October 6th – is an issue. The public has been tantalised by the Tánaiste’s dance of the seven veils, as one detail after another slowly appears of what is in store, naturally all dressed up as a boon for middle Ireland. But there remains a lot of vital detail which we still don’t know.
This has fuelled a fundamental misunderstanding about what this scheme is about. And there is some danger here for Harris. The Irish public has put this into the same box as the Special Saving Incentive Accounts, introduced by then finance minister Charlie McCreevy in 2001, which offered a five year guaranteed 25 per cent State-funded top-up.
Savings under this new scheme will not offer any guarantee. Experience shows that investing in the financial markets offer a significantly higher long-term return than leaving money in a bank deposit. But, as the warning at the end of the radio ad goes, the value of investments can fall as well as rise.
The political risk is that – after all the Harris hoopla – the public finds it all a bit underwhelming, because the magic of investing in the markets comes not in a five-year hit, but in the long-term accumulation of gains over many years.
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