Mr. Tim Duggan:

I thank the committee for inviting us back following its engagement with other parties. In my statement to the committee back in December I explained why auto-enrolment was being introduced; how that honours a programme for Government commitment; and how the design approach chosen by Government is evidence and research-based, how it has been influenced by a considerable public consultation, and how we have learned from implementations elsewhere in the world and from engagements with both domestic and international experts. I also explained how it has been designed to make it easy for people and employers to engage with and understand; how it has been designed to give people choice but not require them to exercise any of it; and how some further elements may be phased in over time once the system is bedded in and working for hundreds of thousands of employees.

Since then, the committee has met with and heard from a number of other parties. I will spend the next few minutes addressing the main issues that I have seen arising in those discussions.

It has been stated that the 2024 implementation time line may not be realistic. The committee should know that we now have a dedicated project team in the Department progressing a very significant work programme. This is not a part of someone’s work. As part of that, we intend to outsource several key elements of the programme through procurement exercises to ensure that we are not doing things from scratch or developing anew. Instead we will be leveraging the solutions and expertise already available in the market and therefore get the solutions quicker. The Minister has been very clear that while 2024 is both ambitious and challenging, it is achievable. As such, we are now completely focused on implementation of the design agreed by the Government.

It has been suggested to the committee that the contribution levels proposed are too high by international standards, especially for employers. However, our research shows that in some other jurisdictions, employers are required to pay more than 6% or are required to pay the lion’s share of the total contributions. We have also learned from other countries such as the UK, New Zealand, which are the classic examples, that their rates are not sufficient to provide income adequacy in retirement and they are now examining how they can either increase rates or convince people to save more. For example, a review in the UK in 2017 recommended that contribution levels should be raised to a minimum of 12% overall. It is worth repeating that the contribution rates have been set based on lessons learned from other jurisdictions and on what is advised as necessary for adequate income in retirement. It is also worth repeating that the contribution rates will be gently phased in over ten years to facilitate both personal and employer adjustment to these new costs and that this is a change from the original straw man proposal based on feedback during the public consultation. Furthermore, employers get tax relief on any contributions they make to a pension arrangement. To this end, employers can offset their AE contribution costs against any corporation tax liabilities. Therefore, the financial impact of AE contributions on employers is diluted by the current tax system. The design agreed by the Government seeks to strike an even balance between employee and employer contribution obligations. It also gives very clear certainty to both employees and employers on the rates that will be applicable and when they will be applicable. This certainty would be considerably undermined by periodic reviews and regular legislative changes as was suggested.

It has also been suggested that AE will impact on competitiveness. The committee may know that the National Competitiveness and Productivity Council’s recent report entitled Ireland’s Competitiveness Challenge 2022 expressed some concern that a number of measures proposed by the Government in tandem could represent a cost for employers, especially SMEs, through administrative burden and extra resourcing requirements. However, as I will explain shortly, we believe the AE administrative burden and resourcing for employers is negligible. It is also worth noting that the council welcomes AE and believes that, combined with other measures, it is vital for Ireland to attract as well as retain workers and thereby support productivity growth. Of course, it also brings Ireland into line with other OECD countries where we are currently an outlier. It has been suggested that the AE design will widen the pension gap and the gender pension gap in particular. Even a cursory examination shows that this makes no sense. AE will be a significant step forward in addressing existing pension coverage in Ireland, and for the first time will result in hundreds of thousands of low earners and women, who currently have no supplementary pension coverage at all, being enrolled into a quality assured, easy to use, and financially incentivised retirement savings system. In addition, even where people fall outside the proposed age and income thresholds, they will be allowed to opt in, and where they so choose, their employer and the State will be legally compelled to make matching and top-up contributions respectively.

It has been suggested the system does not facilitate additional voluntary contributions, AVCs. It is absolutely desirable that AVCs will be accommodated in the AE design. However, considerable policy and operational matters arise with AVCs that need to be worked out in advance. It is, therefore, extremely unlikely that they can be accommodated in the initial implementation. In addition, it is imperative that the system is as simple and straightforward as possible to facilitate implementation by 2024, so that more than three quarters of a million people can start saving for their retirement as quickly as possible. The Government’s design makes it clear that AVCs will be facilitated once the system is bedded in and operating well. All of that said, the Department is currently examining limited forms of AVCs that may be ready in time for the initial implementation. They could be availed of by those who may have to stop working for a while. Even so, it is worth noting that we have been able to find no evidence from any jurisdiction that the provision of AVCs or otherwise has any material impact on gender pension gaps. After all, they are available in existing occupational schemes and are available in other jurisdictions with wider gender pension gaps than Ireland.

It has also been suggested that the age and income thresholds should be removed or reduced. Some of that was discussed the last time we were before the committee. It is worth noting that it would be far easier for the Department if those thresholds did not exist. However, it is clear that doing so would result in a very significant number of people being auto-enrolled that either do not need to be – based on the replacement rate discussion we had in December – or because they are part-time earning to fund their education. It is not obvious that would be the right thing to do. In addition, there is evidence from other jurisdictions that auto-enrolling people below certain thresholds could result in poverty issues for some of those people. It is important to note that it is unsafe to make direct comparisons with other jurisdictions on those income thresholds without comparing all aspects of those systems and how they actually work, as such limited comparisons without proper context can be misleading indeed. We can give more detail by way of example should the committee wish to go through that.

It has been suggested that the State top-up approach should not be used, and tax relief maintained because this does not have an impact on whether people stay in or not. I think that is too simplistic an analysis. First, it is worth noting that the AE system is the only retirement savings system that people may be compelled to join by law. Therefore, the Government decided that all people within that pseudo-mandatory system should be afforded the same level of incentivisation from the State to ensure equality of treatment. Everyone's euro gets incentivised in exactly the same way. The tax relief system would not do that. This became an issue in the UK where His Majesty's Revenue and Customs, HMRC, had to implement rectifying measures. We will be doing that over coming years. Second, in advance of that decision by Government, the Department examined a range of options, including the possibility of applying normal tax relief and compensating with top-ups, those who would not benefit greatly from that tax relief. Such approaches would prove quite complex to design and implement. They would be difficult to explain in simple, understandable terms, and could be costly for the Exchequer. Third, before AE is implemented it is worth noting that pension portability is not a major feature of the Irish pension landscape because of the complexities and costs involved. As a consequence, people who move employment regularly tend to end up with multiple pots rather than transferring those pots between schemes. This immediate lack of portability, therefore, that has been raised with respect to AE is unlikely to be a real problem. Nevertheless, the Government has set out in its design document how this issue of portability will be examined in due course once the system is bedded in and operating. Finally, there was questioning of the rationale and proposed format for the Central Processing Authority, CPA. I know it had huge support from many commentators.

It is worth remembering what the CPA is and what it is intended to facilitate. It is proposed to be established as a statutory independent body, which, while independent, will be accountable to Government. That is a really important point. It will also act as a custodian acting in the sole interests of the AE members. It will, therefore, be a buffer between the participants who are some of the lowest income individuals in the State, and the pensions and financial services industry. We know that is a complex industry to understand. That is a crucially important element. It will facilitate a pot follows member approach, which does not currently exist in any other scheme and only in some countries to a limited extent. However, it does not exist in the purest sense being suggested in this AE scheme. It would be virtually impossible to implement that pot follows member approach without some type of CPA-type structure. Its existence means that employers will have little or no administrative burden. It is closer to none than little. They will have no forms to fill out, no staff to be trained, no need to provide information to employees, and no need to enroll employees. That will all be done automatically by the CPA instead. That is also an important aspect of this design. It has been suggested that a CPA is not necessary as existing public bodies could carry out its functions, such as the Revenue Commissioners collecting contributions and the National Treasury Management Agency, NTMA, managing investments. Those options have been considered very carefully. However, the functions of the CPA are quite distinct from the functions of these bodies. If one looks at the functions set out for the CPA in the proposed legislation, there is a long list that neither of those aforementioned bodies currently engage with. In reality, these organisations would have to do exactly the same thing as the proposed CPA. They would have to establish new structures. They have to resource them with staff and expertise. They would have to engage in new IT development. They would have to develop legislation and regulations, and so on. In addition, they would require protocols and systems for hand-offs between them, which is an issue that a singular entity like the CPA avoids.

In short, while at a cursory level it might appear to be a sensible suggestion, in reality, when it is analysed carefully no cost savings or efficiencies would be achieved. It is actually quite easy to argue that the opposite could occur.

In conclusion, it is not possible to design a system that fulfils every possible criterion or wish, or indeed to implement such a system in a short timeline with every bell and whistle. The Government has sought to strike the appropriate balance between the earliest possible implementation of a fair and adequate system that will be suitable for the vast majority of the 750,000 people who have never engaged with pension systems, and the provision of additional flexibilities and options over time for the much smaller number that will need them as they progress through their careers. I apologise for taking a little longer, but felt it would be useful to provide the committee with some additional clarity, given the submissions it has received. As the Chair mentioned, I am joined by my colleagues, Mr. Ciaran Diamond and Ms Sarah Judge, and we will help with any queries members may have.