Dr. Laura Bambrick:

On behalf of the Irish Congress of Trade Unions, I thank the joint committee for the invitation to input to its pre-legislative scrutiny of the automatic enrolment retirement savings system Bill 2022. I am accompanied by my colleague, Mr. Liam Berney.

Ireland is the only country in the OECD without a mandatory pay-related pillar for retirement savings. ICTU has long argued that our voluntary approach has failed. Only 56% of all workers have a workplace or private pension to supplement their State pension. Some 90% of public sector workers do, compared with one in three, or 5%, of workers in the private sector. As the contributory State pension is paid at a flat rate of €253.30 per week, rather than as a percentage of previous earnings, workers without a supplementary pension are exposed to a significant drop in their normal living standards in retirement. When enacted the Bill will legally require employers to automatically include all employees who satisfy certain criteria in a pay-related pension savings scheme, and to make minimum contributions. These will also be made by workers and topped up by the State.

ICTU supports the introduction of auto-enrolment as a means of increasing income adequacy for workers in retirement and putting a legal obligation on employers to contribute to securing their employees’ living standards in old age. Pension savings also reduce the risk of a fall in consumer demand. Over the coming decades, the importance of this income to the wider economy will grow as the population ages. The amendments to the Bill put forward by ICTU, detailed at length in our written submission to the committee, aim to deliver a fit-for-purpose scheme. In the brief time I have available for my opening remarks, I will concentrate on our recommendations for improving coverage, contributions, and confidence in the scheme.

Under the proposed scheme, automatic enrolment will apply to all employees aged between 23 and 60 years who are earning at least €20,000 a year across all employment and are not an existing member of a workplace pension scheme, or one that meets the minimum contribution requirements. ICTU recommends that young and low-paid employees and self-employed persons with no employees also be automatically enrolled. That the self-employed will not be obliged to comply with the auto-enrolment rules is a cause for concern for ICTU. Aside from the low pension coverage among the self-employed, introducing a compulsory employer contribution will further increase the financial incentive for unscrupulous employers to misclassify employees as self-employed. ICTU recommends self-employed workers with no employees be automatically enrolled and the business for which they provide work or services be made liable for the employer contribution. This recommendation mirrors suggested approach No. 1 in the Department’s review of bogus self-employment.

ICTU also rejects the proposal to restrict auto-enrolment to workers aged over 23 years and recommends that the age trigger be aligned with the PRSI minimum age threshold of 16 years.

Workers could have wasted seven years between the ages of 16 and 23 when they have started their working lives but are not saving towards a financially secure retirement.

ICTU recommends that there be no lower income threshold. It is our view that including a limit before compulsory retirement savings kick in runs the risk of unintended consequences for workers in the form of income cliffs and employment disincentives. If working more hours, taking a promotion or new a job brings incomes over the income limit, it can result in less take home pay. For employers, it increases the incentive to keep the wages below the threshold so as to avoid their obligation to contribute to the employee's pension pot.

The proposed scheme provides for a total minimum contribution of 14% of the wage between the employer, employee and the State, to be gradually introduced over a ten-year period. Employees will be required to make a minimum contribution of 6% gross earnings to the scheme. Employers will be required to match the minimum contribution on behalf of their employee, subject to an annual earnings cap of €80,000 per annum. This is deductible for corporation tax purposes. The State will contribute €1 for every €3 an employee saves, withpro ratamatching also subject to the €80,000 earnings cap. ICTU recommends that the State contribution should mirror the value of the 40% tax relief arrangement, that is, it should increase to €1 for every €2.50 a worker saves.

To make auto-enrolment attractive and affordable for low-wage workers, ICTU recommends the employee contribution be graduated up to €20,000 and a flat 5% on all additional earnings. ICTU recommends the employer contribution be raised to 7%. A 7% employer pension contribution, together with the 11.05% employer social insurance contribution, will still be below the EU average. The 5:7:2 ratio has the added benefit of upholding the established principle in collectively bargained pension schemes of the employer contributing more than the employee to the pension pot. Employers who already contribute into good workplace pensions will welcome that their competitors are obliged to move further towards doing likewise, as this will reduce the competitive advantage of lower labour costs.

The new retirement savings scheme will be in addition to, not in place of, the State pension. A Roadmap for Pension Reform 2018-2023 commits to formally setting a benchmark of 34% of gross average earnings for the contributory State pension. ICTU views this as essential for public confidence that auto-enrolment is not intended to dilute or displace the role of the State pension as the bedrock of the pension system over time, and calls on Government to deliver on this commitment as a matter of urgency.

Under the proposed scheme, workers will have access to a range of retirement savings investment funds from approved commercial providers, with access to these providers mediated by the State via a newly established central processing authority, which will be statutorily independent in the exercise of its functions. Individual trust and confidence in the management of pension savings is vital to building widespread support for, and confidence in, this radical new policy departure. The Irish public remains understandably wary of the charges and fees levied on retirement savings and poor investment decisions.

While the pension levy is still fresh in the public memory, strong legislative protection for the fund from raids by future Governments can help rebuild damaged trust. ICTU rejects the proposed maximum annual management fee, viewing 0.5% as excessive, and recommends it be revised downwards and that the total charges and fees over the lifetime of the pension be capped. We further recommend trade union representation on the central processing authority board.

ICTU has long advocated for concrete action to address the alarmingly low levels of second-tier pension coverage in the private sector. The draft legislation setting out the design principles for an automatic enrolment retirement savings scheme represents a significant step towards achieving this objective.