'Emotional barriers' and economic history stifling personal investment

Central Bank of Ireland governor Gabriel Makhlouf said significant barriers are preventing Irish people from investing

Governor Gabriel Makhlouf said Ireland's low level of direct retail participation reflects a complex interplay of historical, cultural, and structural factors

The State's economic history of financial crises and a series of emotional and psychological barriers are behind Ireland's low participation in retail investment, the governor of the Central Bank has warned.

Speaking at the inaugural Savings and Investment Forum on Tuesday, Gabriel Makhlouf said Ireland has one of the lowest levels of direct holdings in investment funds in Europe at just 2.2%, despite being one of the largest global centres for investment funds. 

"This low level of direct retail participation reflects a complex interplay of historical, cultural, and structural factors that have shaped how we think about savings and investment," Mr Makhlouf said. 

"Significant barriers persist. Psychological and emotional barriers are deeply rooted, perhaps in Ireland's economic history and the financial crises we have experienced."

High saving rate

Irish households have around €170bn sitting idle in deposits in Irish banks, earning little to no return, and are saving money at a rate not seen since the pandemic-induced highs of the early 2020s. Currently, around €1 in €7 is being saved by households, which is being underpinned by rising income and a fall in consumption.

"The result is that Irish retail participation in financial markets is very limited, even compared to our European peers," Mr Makhlouf noted. 

The Savings and Investment forum focuses on advancing personal investment in Ireland and aims to increase retail participation in capital markets. 

Investment Account for Ireland

Also speaking at the inaugural forum, tánaiste and finance minister Simon Harris said the Government was developing an Investment Account for Ireland.

"We want to make investing simpler, clearer, and more accessible for ordinary people, and help their hard-earned money work harder for them over time," said Mr Harris.

"This will be a priority for Government. Our aim is to legislate for the framework in 2026 and to allow accounts to be offered from 2027.

"The account will be designed as a simple, one-stop option for individuals. It will also be a key part of a broader rethink of the taxation of retail investment."

As part of Budget 2026, the Government reduced the tax rate on investments in funds and life assurance policies from 41% to 38%, with the tánaiste adding that further work on a retail investment tax roadmap will be published in the coming months. 

"As with all taxation measures, the roadmap will feed into the usual Budget process, but I do hope to see further progress made to address some of the existing obstacles to greater retail investment," Mr Harris added.

The finance minister outlined plans for an annual flat-rate tax to the value of assets held in the account above a tax-free threshold, which could potentially serve as the sole form of taxation on investments made through the new investment account.

In addition, all investments made within the account would receive consistent tax treatment and account providers would be required to administer the tax to help remove complexity for investors.

"Ireland still does not have a sufficiently diversified savings and investment culture," Mr Harris said. 

"Too much of people’s hard earned savings remains in low-yield deposits, where inflation can erode value over time.

"Investment in capital markets can offer households another path to long-term financial wellbeing, while also supporting growth and competitiveness in the wider economy."