Alice-Mary Higgins (Independent) | Oireachtas source

I thank Mr. Nicholson. We first talked about this about four or five years ago in a completely different forum. I recognise it is one of the policy areas into which a lot of very considered thought has gone. There are a lot of really strong and positive aspects to some of the proposals. I also quite like the straw man proposal as one part of that consultation. Compared with the total contribution consultation of the summer it was not as clear for people. People found it very difficult to navigate in terms of what they were looking at and what was being asked for. This sets out some of the key decision points and people can see where the thinking is at in a very clear way and that is useful. From my perspective, I am thinking of it in terms of the first tier, second tier and what I will call the third tier, which is the tax relief space. The priority has to be the first tier and the fixing of our first-tier system. I reckon that will come in 2020. How do we ensure the focus on what might be a very positive scheme does not take away from our commitment to deliver on the first tier, especially as approximately 50% of all women workers are on €20,000 or less? They are almost falling out of this already. That is a huge number of workers. The question is about adequacy and what we consider adequate in terms of replacement income. Mr. Nicholson said the replacement rate is about 37%. With regard to the replacement rate we have now within the first tier, we need to continue to have an ambition for it to go up a little so it does a better job of delivering adequacy. It is very important the scheme is not used in any way as a rationale to take away the pressure of adequacy that should be there in both our contributory and non-contributory first-tier pension scheme. It will give confidence to people if it is married to an ambition to continue. The question of how it is benchmarked has been raised. How do we keep going that conversation and expectation of adequacy? I have noticed in some of the rhetoric around it, although not from the Department, that there has been a slippage suggesting that if one wants an adequate income replacement one needs something specific. We should treat this as an additional thing which would be a very positive additional element for most people.

I will move on to the other side of the second-tier system and my specific questions on the system. It was mentioned that it is a question for the individual. Those who are already in tax relief schemes and so forth were mentioned. There is a tension because it is an expensive scheme. It is a good scheme but if it is put in place something needs to give and what needs to give must not be the first tier or any other part of the social protection budget. What has to give is our current tax relief system. We see it starkly that those on €60,000 and €70,000 are benefitting most from the marginal rate tax relief at the moment.

Mr. Nicholson spoke about the less commercially viable aspect of supporting lower income earners in schemes and the fact of the market failure. We need to be honest that the State has created an environment in which it is less commercially viable because the State has rewarded pension systems and pension schemes for targeting higher earners because the marginal rate tax relief, the 40% they get, is much higher. There is a huge supplement there. For decades now, we have incentivised pension schemes to go after, support and push for higher earners. It can be seen in the advertisements for the schemes and in who they are targeting and reaching out to. We need to address that tension. There is a long lead-in time here but that lead-in time needs to be accompanied by a shift away from the marginal rate tax relief that we give at the moment which costs €2.6 billion. That is what we pay out in marginal rate tax relief at the moment. It is important. Mr. Duggan stated he would not be too concerned about those who earn €13,000 or €14,000 but at the moment people can put up to €30,000 through the tax relief system in a year. This scheme is the right way for us to go. We cannot have it sit alongside the tax relief system. There will be tension between them. If we are looking at a supplementary system, it should be this one rather than this in addition to a scheme that works for the highest earners only.

I have a number of practical questions. On the question of risk and where risk sits, Mr. Nicholson spoke about risk working both ways but the question is not just what way risk works but where it sits. If we know that people want security, will the firms that are tendering for this, which is the next 30, 40, 50 or 60 years of private pensions, not take some part of that risk? In 2008, there was a 33% fall in pension values. People have memories. The OECD reported that as the figure in Ireland at the time. The risk needs to sit with the company to an extent. It should not sit with the individual. If it does not sit with the company, we have to ask to what extent the State underpins the risk.

Should there be a public option among the four options of providers? A credit union option has been suggested. One option is a savings scheme with some level of fallback, rather than a scheme designed purely for investment.

There is a question as to how the fiduciary duty that was mentioned can coexist with risk. Given that the scheme will be heavily subsidised by the State, if we look at environmental and social considerations and decide we do not want to invest in arms and fossil fuels - the fossil fuel divestment Bill is moving through the Oireachtas at the moment - how does the fiduciary duty sit alongside ensuring there is a responsiveness to demands for better ethical standards in a public schemes using public moneys? Many people would like that to be the default option. It is a matter of great concern for many individuals.

The redistributive element that was mentioned is one of our pension policy goals. The corporate tax element is used by employers. Can all contributions be written off against corporate tax? Is it not then the case that the State is effectively subsidising both the employer and the State contribution? I wonder about the decision to allow it all to be written off. I could understand were a portion of it to be written off.

Employers pressing on employees to opt out is a real concern in terms of bogus self-employment. What are the mechanisms to ensure that cannot happen?

I refer to gaps in employment in situations where people have low wages and precarious work, and where people are moving in and out of schemes. How is that managed? Does that simply add up at the end?

I agree with the Chair and wonder whether this should be tied to the pension age. These are contributions with a slight difference. It might be enticing for people if they knew that there was an option to stop paying in and to take it out at 60 years old. It would become an additional incentive for persons who know they will not work until 68, or that their employer will not facilitate it, for example, in the case of firefighters. I acknowledge that is different because it is a public appointment, but it is an example.

A cap on the State's matching of funds was mentioned. That is a good idea. It addresses the point that this scheme should be delivering on what are the State's original pension goals, as set out in pension policy papers for many decades, which is to bring in the widest net of people, rather than simply to give a higher benefit to the highest earner. Cap-matching is a good idea but I would like to know what the current thinking is.

Who will manage the central processing authority at the end of the day if there is a problem and a scheme goes bust or falls through? Where does the final responsibility sit? Who underwrites this?