Since ‘banksparen’ was introduced in 2008, Dutch consumers have been able to enter into tax-relieved saving plans with banks or investment firms for certain purposes including supplementary pension or mortgage redemption. Since then, this type of asset plan has seen rapid growth. At end-June 2011, almost 600,000 tax-relieved saving accounts had been opened with Dutch banks, holding total saved assets of EUR 8.6 billion. Total assets held in such special accounts have so far more than doubled each year.
Tax-relieved saving overtakes life insurance in sales
|Date||13 October 2011|
Total balances in tax-relieved saving accounts in the Netherlands are growing rapidly. At end-June 2011, Dutch banks managed over EUR 8.6 billion in tax-relieved saving balances, more than double the figure of the year before. Latest figures on new asset plan sales indicate a growing preference among consumers for tax-relieved saving products over life insurance policies.
Despite such rapid growth, tax-relieved saving balances still account for less than 3% of the more than EUR 300 billion in savings balances held by Dutch households. If growth continues at the present rate, however, tax-relieved saving looks set to become an increasingly important source of funding for the Dutch banking industry. The rapid growth is partly due to a flywheel effect: holders of such accounts, once they have been opened, tend to continue adding to the assets. As more accounts are opened over time, the inflow of funds grows at an increasing rate.Tax-relieved saving grows at the expense of competing products. Until 2008, life insurance policies were the only tax-relieved asset saving option for private individuals in the Netherlands. Now that the range of options has broadened, banks, investment firms and life insurers all have to contend for the same Dutch consumer’s favour. Life insurers have seen the sales of new individual life policies drop, while the market share of tax-relieved saving has grown proportionally. The pace of change has been rapid. In 2010, banksparen already claimed a share of over 40% in the market for tax-relieved asset plans. During the first half of 2011, sales of bank saving products seem to have caught up with or even narrowly overtaken those of individual life policies.
The stiffer competition in the tax-relieved asset accumulation market and the rapid changes taking place in this market demand the strategic attention of all financial institutions involved. The declining sales of life insurance products, if it continues, will force insurers to cut costs all along this important product line in order to protect its profitability. For banks, the new inflow of tax-relieved saving accounts has been a welcome addition to their existing funding base. The balances in such accounts are usually held for long periods and hence relatively stable. Also, the fixed interest rate often paid on these deposits tends to be well-aligned with banks’ long-term exposures. Meanwhile, given the increased competition, banks as well as insurers will do well to sharply monitor the profitability of the products concerned.