Brussels has unveiled ambitious plans to create a new system of tax-friendly investment accounts to encourage European citizens to buy stocks, bonds and investment funds instead of hoarding excess cash.
Savings worth €10trn are held by European households in bank accounts, a massive pool of unused capital that could earn better financial returns and boost economic growth across the EU.
European policymakers want to make investing simpler and more accessible for all citizens and this week published a long-awaited blueprint for Savings and Investment Accounts (SIAs) which will be accompanied by a new package focused on improving financial literacy.
“With SIAs, Europeans could get better returns on their savings, while supporting the financing of EU businesses, economic growth and job creation,” said Maria Luís Albuquerque, Commissioner for Financial Services and the Savings and Investments Union.
SIAs are already available in 13 EU states but these differ in terms of their investable assets, tax advantages, contribution limits, minimum holding periods and geographic restrictions.
Policymakers want the new SIA’s to build on existing best practices to maximise the adoption of the accounts and boost retail investor participation in capital markets.
Valuable lessons could be learned from Japan where the government in 2024 introduced reforms to make Japanese Nippon Individual Savings Accounts (NISAs) more flexible and attractive by making the tax-free holding period indefinite, raising the annual investment limit, and increasing the tax-free holding limit. Following the reforms, assets in NISA accounts surged by €92bn in just one year to around €212bn by the end of 2024.
The new European SIA’s could also provide a huge flow of new business to investment managers operating in the EU if the accounts are taken up by savers.
Modelling by the European Commission suggested that if citizens can be persuaded to move money from their bank accounts into SIAs, then this could result in a boost to investment in risk assets – stocks, bonds and investment funds – over the next 10 years of around €330bn, of which €198bn would be additional investments in EU assets. EU households could earn around €232bn more from investments over the next 10 year under this scenario.
A more ambitious projection published by the Commission suggested that if adoption of SIAs does drive a bigger shift in citizens’ behaviour, then total investments in risk assets could grow by €1.94trn, out of which €1.16trn would be invested in EU assets over the next decade. This would also provide a boost to EU households income of around €1.34trn over the same 10-year period.
A key recommendation is that retail investor should not incur an extra income tax bill or lose any existing tax benefit if they transfer an SIA to a new provider, either within their home country or cross-border inside the EU.
Tanguy van de Werve, Director General at EFAMA, the trade association representing assets managers in the EU, said effective tax incentives were essential to attract retail investors.
“By explicitly linking Savings and Investment Accounts to favourable tax treatment and keeping the investor journey simple and accessible, the Commission has provided practical guidance that, if followed, will genuinely help make investing more attractive,” said van de Werve.
More debate over the tax regime for SIAs appears inevitable as some EU countries are likely to be reluctant to increase investment incentives due to concerns about missing out on possible tax revenues during a period of extreme strains on government finances.
The Commission has sought to address those concerns with calculations that suggest tax breaks offered by a new system of SIAs would have only a modest negative fiscal impact at an aggregate EU level while also acknowledging that a detailed analysis for each member state is currently impossible due to differences in national tax systems and current data limitations.