This article discusses the significant potential for charitable and philanthropic causes in Ireland to benefit from legacy income in the coming years.
The financial position of Irish households on aggregate has 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.
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.
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%[i] 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 20 year total inter-generational wealth transfer at death figure of at least €122bn and perhaps up to €185bn in the 2017-2036 period[ii].
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.
This potential is not only a function of the significant 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.
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. These figures identify the significant potential for charitable and philanthropic causes to benefit from legacy income in the coming years.
Author: Niall O’Sullivan, Fund Development Advisor at The Community Foundation for Ireland.
The Community Foundation for Ireland is a philanthropic organisation assisting donors with their strategic giving and supporting charities and community groups through grant making.
[i] Jim Power: Legacies for Good, Wealth Transfers and the Potential for Philanthropy in Ireland. Jim O’Leary, Economist 2018
[ii] Jim Power: Legacies for Good, Wealth Transfers and the Potential for Philanthropy in Ireland. Jim O’Leary, Economist 2018