Dr. Barra Roantree:

The Deputy has well described the complexity that is potentially being introduced here. As I said in the opening statement, this is not necessary in order for AE to achieve its aim. We can separate these two things. We know from the evidence in other countries that AE works and lifts the level of private pension coverage because it changes the default option. The group we are looking at are people who might not necessarily pay attention to those pension affairs. AE effectively works because it changes the default choice, which would be to be in rather than out. That is why it lifts private pension coverage. From the evidence we have seen in other countries, one does not need these additional changes to achieve that. A better way of approaching it might be to look down the road in three, four or five years and see if there are still groups that we are worried are under-saving. If there are, maybe we can design something tailored specifically to those groups rather than having a broad change to the scheme of taxation. For all the reasons the Deputy outlined, this creates much complexity.

In a way, this is trying to achieve two objectives. One is to lift the level of private pension coverage and the other is to change the system of marginal rate relief. Those two things can be separated. Automatic enrolment will work to lift private pension coverage and there is much detail about that. On the second matter, there is a broader conversation that needs to be had. One of the things that I highlighted earlier as part of that conversation is that the biggest example of a mistargeted relief from the tax system is the tax-free lump sum. That is something that the Commission on Taxation and Welfare is focused on and which we have written about at the ESRI. That is not a well-designed or well-targeted incentive to encourage the people who we are worried about not saving enough to save enough; rather, the beneficiaries of those systems are those who will get 100% or so of their final salary as a big lump sum. By virtue of being able to get €200,000 of that tax free and the next €300,000 with a 20% relief, that is where the focus on restricting tax reliefs should be, rather than necessarily changing the marginal relief scheme, which broadly works quite well. There are issues around that, particularly the PRSI treatment.

At the moment, most of the contributions made to pension schemes have not had PRSI paid on them on the way in and, because we do not charge PRSI on the incomes of those aged over 66, that is a departure from the exempt-from-tax kind of model. There are ways in which could address that, such as levying PRSI on the incomes of those over 66. That is a separate discussion to the one of automatic enrolment. The issue of tax relief, the tax-free lump sum and PRSI is ultimately one which we can think of as separable from AE issue and whether it will work.