Mr. Tim Duggan:

As the committee will be aware, we have had a voluntary approach to supplementary pensions for many decades in Ireland. In short, it has not succeeded in getting the majority of private sector workers into such schemes. Although the latest Central Statistics Office, CSO, data suggests approximately 56% of workers are in schemes, this reduces to approximately 35% when the private sector is considered on its own. If not addressed, this low level of coverage means that people will either be dependent on whatever State pension they can qualify for and-or will have to rely on assets accumulated otherwise. This may result in many people suffering a significant drop in living standards in retirement.

There is no obvious way to address this problem. Various options are available. These range from an entirely State provision, which essentially would be an extension of the existing State pension - and I think there was some discussion of that last week at the committee - to an entirely commercial provision, such as employees being mandated to take out a personal retirement savings account, PRSA, and all employers being mandated to contribute to them.

In its programme for Government published in 2020, as the Chair said, the Government announced that it would tackle this problem by gradually delivering a pension auto-enrolment system, taking account of the exceptional strain that both employers and employees were under at that time and since. It based on a number of principles: matching contributions would be made by both workers and employers and the State would top up contributions; there would be a phased roll-out over a decade of the contribution made by workers; there would be an opt-out provision for those who choose to opt out; workers would have a range of retirement savings products to choose from; and there would be a charges cap imposed on pension providers.

Following detailed political consideration late last year and early this year, the Government published its final design principles of the auto-enrolment system in March this year in line with those programme for Government commitments. That design principles document, which has been furnished to the committee, is the basis for the draft heads and general scheme of the auto-enrolment retirement savings scheme Bill 2022 that was referred to the committee by the Minister for Social Protection, Deputy Humphreys, and which it is now considering.

The first thing to say about the design that has been settled on by Government is that it is evidence-based, following years of research, consultation and availing of various experiences. In that regard, because Ireland is the last OECD country to implement a mandatory or quasi-mandatory retirement savings system, we have learned from approaches and implementations elsewhere. We have seen what has worked well and what has not. Based on that, we issued a strawman proposal in 2018, which, in turn, facilitated a comprehensive public consultation around the country that included focus groups, public meetings, surveys and submissions. Furthermore, the Department has engaged with numerous domestic pensions and investment experts in recent years. The Department has also engaged with international pensions experts, especially under the auspices of Directorate General Reform in the European Commission, which has brought much understanding and expertise to the design considerations.

The second thing to say about the design is that it must be easy for people and employers to engage with and understand so that they can trust and buy into it. That is why, first, the design has a State organisation at the heart of the system, managing its administration and overseeing investment of funds. Second, it uses a State top-up as an incentive rather than tax relief. Third, the design allows people to opt-out or suspend their engagement at various junctures. Fourth, it starts contributions at a relatively low rate and gradually increases them to a sufficient rate over a decade. Fifth, the design includes various parameters around age and income. Sixth, it gives people direct online access to their accounts to see their pots and their performance in as close to real time as we can make it. Seventh, it allows people to exercise choice but never requires them to do that. They do not have to become experts in investment and pensions and those default options will always result in good outcomes for them. Eighth, it is designed to try to minimise the administrative burden and legal responsibility for employers, which has always been a blocker on the provision of pension systems.

The third thing we can say is that because of the quite dramatic demographic shifts facing the nation over the coming decades and the financial pressures that will accrue from such changes, it is critically important to get people into supplementary savings as soon as we can. That means we need to keep the initial implementation as straightforward and simple as possible. We know from experiences in other jurisdictions that such an approach will be suitable for the vast majority of participants. That is why, first, the design is focused solely on employees in an employer-employee arrangement and does not include the self-employed because there are particular complexities in dealing with that cohort. Second, the design is leveraging interfaces with payrolls to facilitate maximum automation. Third, it uses static and easy-to-understand contribution rates. Fourth, it focuses on investment so that people’s money can begin to grow immediately, and it defers treatment of pension draw-down arrangements as, in the main, they will not be required for a number of years. Fifth, it seeks to leverage the technology and expertise that already exists in the commercial market rather than reinventing the wheel.

The design principles also set out how future phases and reviews will consider almost all aspects of the system, based on actual learnings of how it is working in practice and on additional features and flexibilities people may desire. The draft heads seek to deal with all of these matters, and in addition, set out conditions and courses of action with respect to: communications with the various stakeholders and participants; dealing with complaints and appeals; how the scheme will be supervised; compliance obligations, especially with respect to contributions and the timing of same; ensuring that employees are free to make their own choices unencumbered; and a range of other practical administrative matters.

I hope the combination of the design principles paper and the explanatory notes in the general scheme have given the committee the information it needs to consider these provisions but my colleagues, Clare Dowling and Ciaran Diamond, and myself are more than willing to address any queries, clarifications or concerns members may have.