The Community Foundation for Ireland, one of the largest philanthropic organisations in Ireland has provided over €40 million in grants to the community and voluntary sector since 2000 and has launched a new report: Legacies for Good, Wealth Transfers and the Potential for Philanthropy in Ireland.
The report analyses the current financial position of Irish households, examines how household wealth will be passed on to the next generation and highlights the resulting potential to grow philanthropy in Ireland.
Current position
The financial position of Irish households has more than fully recovered from the great recession of the late noughties. Central Bank estimates puts net household wealth at €727bn at end-2017. That’s 1% above the mid-2007 pre-crisis peak, almost 70% above the mid-2012 trough, and indicates that Irish households in aggregate are now wealthier than they have ever been.
The distribution of that wealth is highly concentrated. CSO data for 2013 suggested that the wealthiest 1% of households owned 15% of all household wealth at that time. More recent data, published by Credit Suisse, points to a much sharper degree of concentration. They estimate that the wealthiest 1% of adults owned 33% of all private wealth in 2017, with the top 5% owning about 50% of that total.
Wealth transfer
Given the distribution of household wealth by age cohort and projected death rates over the 2017-2036 periods, it is estimated that just over 21% of that wealth will be available for inter-generational transfer at death over the next two decades. This is probably a lower bound estimate, since some wealth will transfer from older to younger generations before death.
In monetary terms, it is estimated that the total inter-generational wealth transfer at death is currently running at an annual rate of €5.5-6bn. Factoring in the likely future growth of wealth and the time profile of deaths, it is projected that the total amount of wealth available for inter-generational transfer at death could rise to somewhere between €9.6bn and €14bn per annum by the end of the 2017-2036 period, depending on the assumed rate of growth in wealth.
This suggests a potential 20year total inter-generational wealth transfer at death figure of at least €122bn and perhaps up to €185bn in the 2017-2036 period.
“These projections are indicative rather than definitive. They are driven by a range of assumptions about death rates, the consumption of assets in retirement, the growth of wealth and so on. The assumptions that underpin the current exercise are relatively conservative. Thus, even though the numbers that emerge seem very large, the reality as it unfolds could produce even bigger numbers.”
Jim O’Leary, Economist and Report Author
Potential for philanthropic growth
The estimates relating to the distribution of wealth, are by no means exceptional in an international context, but they do suggest that there are several tens of thousands of multi-millionaires and more than one hundred thousand millionaires in Ireland today. Even allowing that much of this wealth reflects the value of family homes, the data point to the existence of an enormous pool from which the charitable sector, philanthropy in particular, might draw large-scale, strategic donations in the future.
These figures signal the enormous potential that exists for charitable and philanthropic causes to benefit from legacy income in particular. This potential is not only a function of the huge wealth transfers that are in prospect, but also reflects the fact that Ireland currently underperforms other jurisdictions in terms of the scale of charitable bequests.
Community foundations worldwide are the beneficiaries of charitable bequests – from the very small amounts to the very large. Irish people are also ‘giving something back’ by committing to make a gift to The Community Foundation for Ireland in their wills with thematic funds being most popular. Examples so far include the LGBT+ Fund, Environment Fund, Children’s Fund, Arts Fund and others. When people support a common goal, the power of many can help make Ireland a better place for generations to come. This research indicates massive potential for growing philanthropy in Ireland and that leaving large charitable bequest could become a new norm in Ireland.
Tina Roche, Chief Executive, The Community Foundation for Ireland.
Charitable bequests currently
Estimates suggest that aggregate charitable bequests are about €50m a year in Ireland, thereby accounting for about 6% of all charitable giving or about 0.9% of the inter-generational transfer of wealth at death. In contrast, charitable bequests are estimated to account for 9% of all charitable giving in the UK and 12% in the US. Moreover, in the UK it is estimated that charitable bequests account for 3-4% of the aggregate value of estates at death.
If charitable bequests in Ireland were comparable to the UK, they would currently be generating something of the order of €220m per annum, a figure that could rise to the €380-€560m range by 2036, depending on the rate at which wealth grows in the intervening period.
Policy and charitable bequests
In many other jurisdictions, such giving, in the form of charitable bequests, is incentivised by providing inheritance tax relief to the decedent’s estate. However, such an incentive cannot operate in the Irish system because the inheritance tax (Capital Acquisitions Tax) is levied on individual inheritances (in so far as they exceed certain thresholds), not on the value of the estate.
However, there are ways in which the Irish system might be reformed in order to encourage charitable giving associated with wealth transfer at death. One,
directed at the beneficiaries of wills, would be designed to encourage them to donate a portion of their inheritances. A simple, straightforward and easily understood way of doing so would be to allow such donations as a €-for-€ deduction from the amount of the overall inheritance liable to CAT.
In making this proposal it is assumed that the increased flow of donations to the charitable and philanthropic sector, and the increase in the volume of activity by organisations in that sector that this would enable, are consistent with government policy objectives. In this connection it is noted that there has not been a statement of government policy on philanthropy since publication of the 2012 report by the Forum on Philanthropy and Fundraising.
The government should avail of an early opportunity to restate its policy towards the charitable and philanthropic sector with any such statement based on a recognition that the sector plays an indispensable role in supporting social, community and cultural life in Ireland and that it does so in partnership with government at all levels. Such a statement should also recommit the government to measures that support and enhance the sector’s capacity to raise funds independently.
You can download the full executive summary here.
For a copy of the full report please contact Niall O’ Sullivan: nosullivan@foundation.ie / 01 8747354