Details of Retail Investment Accounts from the EU Commission

With extraordinary speed, the EU Commission is ready to launch the investment accounts that were announced with the launch of the Saving and Investment Union (Siu) on 19 March. In fact, a draft of the recommendation that should be presented next week is circulating: a document designed to urge and request member states to draw up a plan for the introduction of specific simplified and tax-efficient 'saving and investment accounts'.
The aim is to bring retail investors - in particular European households with a high savings rate and large reserves of unprofitable liquidity - closer to capital market investments (see article on previous page). "To achieve this goal," says Andrea Rocchetti, Global head of investment advisory at Moneyfarm, "the Commission intends to adopt a sort of best practice, drawing inspiration from models that have worked in other Member States and elsewhere, such as the Isk active in Sweden for some years, and the Isa (Individual Saving Account) available in the United Kingdom for over 25 years. These instruments are successful because they stimulate savers to set aside their capital with a financial intermediary by offering tax advantages: for example, ISAs in the UK allow exemption from capital gains tax every year on a certain amount paid in and are used by over 22 million savers, more than 40% of the population".

How does the new individual saving investment account work? According to the document, it must have specific characteristics of accessibility and flexibility. The Commission places great emphasis on the fact that the investment experience (the so-called investment journey) must be user-friendly. The procedure must be uncomplicated, straightforward, and the Commission is pushing hard for it to be digitally manageable. In addition, the 'containers' must be free of minimum amount limits, allowing even minimal investments (such as EUR 1 or EUR 100). There must also be no age limits. The intention is to break down access barriers as much as possible.

The most relevant novelty is that this container must include significant tax advantages for members. These tax advantages must be at least as good as the best product currently available in that Member State in terms of tax benefits (e.g. in Italy, it must be at least as good as the Pir). Although no strict constraints are then placed on investment geographies, the container should allow savers to access at least three specific asset classes: shares, bonds, and fund or ETF shares.

"Diversification by asset classes and geographies is fundamental for risk control," explains Rocchetti, "and other financial instruments such as Eltif or Fia could also be included in the container."It is precisely this aspect that brings the role of intermediaries into play. "The container can be assimilated," continues Rocchetti, "to existing instruments such as asset management, pension funds, Pir or unit-linked policies. These instruments must be proposed by financial players. Moreover, the Commission emphasises, based on concrete data, that a high level of competition favours better efficiency of the instruments and greater participation by savers. Consequently, the instruments must be offered at proportionate and fair costs'. Furthermore, in order to stimulate competition and to allow transfer between intermediaries, there must be no exit costs.

The text of the draft does not indicate any timeframe, but it seems that the Commission is inclined to allow one year, starting from the issuance of the document, for member states to respond and show what actions they have taken. Furthermore, Member States that already have similar instruments (such as the PIR in Italy) can choose whether to modify existing instruments to adapt them to the new recommendations or to create new ones. "We are still at an early stage and it is premature, but adapting existing instruments such as PPPs certainly presents challenges," Rocchetti explains. Pir offers a significant tax advantage, but they present constraints in terms of time and type of investment and it would be better, therefore, to take advantage of the opportunity to create a new offer (saving investment account) with less rigidity and constraints, not focused on the Italian system, and addressing it to the widest audience of investors. The Pir could remain useful instruments for clients with higher capitalisation who want a small part of their portfolio exposed to the Italian system at a favourable tax rate"..