Fianna Fáil TD for Kildare North, Naoise Ó Cearúil, has said that any meaningful reform of savings policy should begin with the introduction of tax-free child savings accounts and trusts.
Deputy Ó Cearúil said there is no need to reinvent the wheel when it comes to savings reform and that Ireland is currently out of step with comparable countries in how it supports families saving for their children’s futures.
The Kildare North TD pointed to the UK model and said Ireland should introduce a Junior Individual Savings Account. In the UK, Junior ISAs allow savings to grow tax-free either through a cash account where interest is not taxed or through a stocks and shares account where investment growth and dividends are also exempt from tax.
Speaking on the issue, Deputy Ó Cearúil said:
“Currently, if a parent saved the €140 monthly Child Benefit payment from birth at a return of 7%, by the time their child turns 18 that fund would be worth roughly €60,000, but with a tax bill of around €11,000.
“That is €11,000 going to Revenue instead of helping to cover the real costs of adulthood such as college, buying a car or travelling.
“You are effectively being taxed for saving for your child’s future and I believe that is wrong.
“At present, that €11,000 goes straight to Revenue. I believe those savings should remain with the child they were intended to support.”
At present, parents who save through a standard child savings account may earn interest of around 2.5%, but any return is subject to DIRT at 33%. Those who seek better long term growth by investing through a child savings trust or investment bond face an even higher burden, with gains subject to an exit tax of 38%.
Deputy Ó Cearúil noted that the UK’s Junior ISA has been a major success with over 1.3 million active accounts. This would create steady, consistent saving from birth, with long-term compounding doing the heavy lifting and crucially without the drag of exit tax on growth.
He added that the introduction of a Junior ISA would also support financial literacy from an early age, saying that children growing up knowing they have an investment account in their own name would gain a practical understanding of long-term thinking, risk and reward and the value of starting early.
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