Mr. Fergal O'Brien:

I thank the Chair and members of the committee for the opportunity to join them this morning to discuss the issue of auto-enrolment pensions, which is critically important for employees, employers and Irish society. IBEC remains a strong advocate for AE and acknowledges the significant process that has been made in agreeing the high-level principles of its design, which we think are reflected in the draft legislation. With just over one third of private sector workers having occupational pensions, Ireland’s supplementary pension coverage has remained stubbornly low, despite policy announcements by successive Governments over the past 20 years. If this issue remains unresolved into the medium term, it risks leaving Ireland as the only OECD country that does not yet operate an AE or similar system of promoting supplementary pension savings, thereby doing serious damage to our consumer economy, leaving a generation with substandard pensions coverage and an unsustainable bill for the State.

We, therefore, believe that it is worth outlining the principles IBEC has set out in previous submissions to and engagements with Government on this important issue and specifically on the Bill. The proposed auto-enrolment system should encourage and educate individuals to take personal responsibility for their pension savings; be low cost; have high-coverage supplementary savings scheme for those on lower incomes and without access to an occupational or private pension arrangement; supplement the existing public pension system; provide certainty with regard to policy governance for both employees and employers; be seen as equitable and be based on a simple regulatory framework that incentivises employers to comply.

We have cautioned against some issues. The system should not have negative and unintended consequences for growth and employment in some firms, especially those SMEs and businesses who operate on low margins; be a new burden on employers in the form of contributions to employees' pensions funds or compliance costs; be perceived as an additional tax by employees; provoke a long-term shift away from tailored occupational provision, in many cases of which we have a system that is functioning quite well; and, finally, should not increase costs for employers who already provide pensions, thereby forcing them to level down existing provision.

There should be a number of changes to the Bill to better align with the principles we have set out. At this stage of proceedings, I will just mention some of the changes and, of course, my colleague, Ms McFadden, and myself are available to discuss other aspects of the Bill and our broader submission. With regard to the scope of participants, the upper salary threshold of €80,000 is too high and the scheme should be more focused on building contributions for entry-level, low-cost savings. This is where we have to target the legislation and ultimately, the AE initiative. The self-employed, who make up approximately 16% of the working population and of whom less than one third have supplementary pension cover, should be included within the scope of eligible participants.

We are concerned about the scale of contributions required for both employees and employers and request the committee to consider ensuring in the legislation that competitiveness and affordability reviews are completed before each stage of the contribution increases are progressed. We know from our member feedback that contribution costs will present a significant affordability challenge for workers, particularly as they continue to struggle with cost-of-living challenges, while employers and our members have been faced with a raft of State and market-related labour cost increases in recent years. We are concerned the contributions required will add further to competitiveness risks facing Irish business.

We are especially concerned at the decision within the draft Bill to reduce the three-year automatic re-enrolment gap originally proposed to two years. This will impose an excessive administrative cost on many employers. Many occupational pension schemes include waiting times that are aligned with probationary clauses in employment contracts. The proposal within the Bill that the AE system will have no waiting period will be at odds with the majority of waiting periods within existing occupational schemes. IBEC is concerned that this could create anomalies and confusion and has the potential to undermine existing occupational pension schemes.

IBEC remains supportive of the Bill. We welcome the opportunity to engage collaboratively with the committee to address the concerns we have outlined to ensure its success. We look forward to members' comments and questions.