Ageing Population Fuels Savings Growth
The ageing population in Ireland is driving a surge in household savings, which is projected to increase further. This highlights the importance of providing households with access to diverse investment options to use their savings more productively
Ireland's Savings Surge
The savings accumulated by Irish households, currently exceeding €156 billion, are projected to increase further as the population ages, according to a leading economist at the Central Bank. In the last quarter, households saved 14.1% of their incomes, continuing a trend that began during the COVID-19 pandemic. Despite rising real incomes, consumption and spending have not kept pace, resulting in a consistent savings rate of around 14% since mid-2022.
Robert Kelly, Director of Economics and Statistics at the Central Bank, highlighted that Ireland’s working-age population is expected to peak in 2045 and then decline, leading to an even higher savings rate. “An ageing population saves more,” Kelly noted, adding that the recent auto-enrolment of pensions will further boost savings within the economy.
The official definition of household savings includes purchasing assets such as new homes, paying off debts, and contributing to pensions, in addition to depositing money in banks. Central Bank data shows that net deposits into banks increased by €1.3 billion in the third quarter.
Given that much of this money is held in low-interest accounts, there is a growing need to incentivize households to use their savings more productively. Kelly suggested that the government should consider measures to deepen the savings pool, such as tax incentives for investments in mutual funds and other productive assets.
A recent report by Mario Draghi on EU competitiveness identified an €800 billion investment gap, representing nearly 5% of the EU’s GDP. Draghi emphasized that this funding should primarily come from the private sector. Kelly echoed this sentiment, stressing the importance of diversifying the savings pool and facilitating household access to various investment options.
The Central Bank’s latest quarterly bulletin forecasts a modest increase in the savings rate over the next two years, averaging 15.6% between 2024 and 2026. The bulletin also highlighted the need for sustainable mobilization of household savings to enhance the resilience of households, businesses, and the economy as a whole.
Mr. Kelly urges Ireland to take action in diversifying the savings pool. It’s crucial to provide households with access to mutual funds and other investment options. This can be achieved by incentivizing through tax policies, such as adjustments to capital gains tax and easing restrictions. Addressing the frictions in the tax system that hinder investments in equities or mutual funds is essential. Let’s work together to create a more dynamic and productive savings environment.