Denis Naughten (Roscommon-Galway, Independent)
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I have received apologies from Senator Garvey.

Members participating in the meeting remotely are required to do so from within the precincts of the Leinster House complex only. I ask that members and witnesses turn off their mobile phones or ensure they remain in silent mode. I ask members of the committee who are participating remotely to use the raise-hand icon on Microsoft Teams if they wish to contribute.

This morning's meeting has been convened to continue our pre-legislative scrutiny of the automatic enrolment retirement savings system Bill 2022. We will engage with representatives from Irish Life in a moment, followed by representatives from the Pension Authority. Automatic enrolment has been discussed for decades in Ireland. We are currently the only OECD country that does not operate an automatic enrolment or similar system as a means of promoting pension savings. The new system is designed to simplify the pensions decision for workers and make it easier for employers to offer a workplace pension. Under automatic enrolment, employees will have access to a workplace pension savings scheme co-funded by their employer and the State.

The decision to implement an automatic enrolment system is consistent with the key recommendation contained in the OECD's review of the Irish pension system, published in 2014, namely that the single greatest goal in Irish pension policy should be to increase the supplementary pension coverage rate through the introduction of a mandatory or quasi-mandatory earnings-related system. In response, in March 2018, the then Government published A Roadmap for Pensions Reform 2018–2023, in which it confirmed its intention to develop and implement a State-sponsored supplementary retirement savings system into which employees would be automatically enrolled. In June 2020, the Programme for Government: Our Shared Future reaffirmed the commitment to introduce an automatic enrolment system. In line with this commitment, the Government approved the final design principles in March 2022.

The Government has now approved the general scheme of the automatic enrolment retirement savings system Bill. It is in this context that we are scrutinising the general scheme. I welcome to the meeting today representatives from Irish Life: Mr. Declan Bolger, chief executive officer of Irish Life Group, Mr. Oisin O'Shaughnessy, managing director of corporate business, and Ms Teresa Kelly Oroz, head of public policy. They are all very welcome this morning.

Before we start, I wish to explain some limitations to parliamentary privilege and the practice of the Houses as regards references that may be made to other persons in evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected pursuant to both the Constitution and statute by absolute privilege. Witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against a person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory in relation to any identifiable person or entity, they will be directed to discontinue such remarks. It is imperative they comply with any such direction. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

I call on Mr. Bolger to make his opening statement.

Mr. Declan Bolger:

I thank the Chair. We have provided a detailed submission, so I will keep my comments on the opening statements rather brief.

Irish Life Group thanks the committee for its invitation to present our views on the on the Bill. Irish Life believes the introduction of auto-enrolment will drive a very positive cultural change within Ireland for generations to come, enabling more people to save for their retirement and to have a better quality of life in retirement.

The introduction of auto-enrolment in Ireland will be a seminal moment for 750,000 people, who will be provided with the opportunity to put in place a more financially secure future. This is very important legislation, and it behoves all stakeholders to get it right first time.Auto-enrolment is a social good that should be designed and implemented with the best outcome for all members at its core.

While Irish Life is strongly supportive of the introduction of auto-enrolment, there are a number of important public interest concerns that influence its introduction that we strongly advocate that the committee should consider carefully as it develops its pre-legislative scrutiny report. These are based on our experience as a pension provider for over half a million customers in Ireland and detailed analysis and visits to markets where auto-enrolment schemes already operate. These are the lack of any cost–benefit analysis for the optimal build of infrastructure and system required to support auto-enrolment; the impact the revised proposals will have on women, which, if not addressed, could exacerbate the pensions gender gap; and the lower levels of protections and rights provided to auto-enrolment members compared to those within occupational schemes.

In addition, the heads of Bill also remain silent on a number of key aspects that are critical for members when entering a pension fund – in particular, how they can access their funds in retirement.Auto-enrolment members are therefore being asked to provide contributions with no certainty as to how they will access their money in the future and what tax treatment will apply, which is contrary to any other form of pension arrangement in the State and potentially leads to the accumulated savings not being used to actually provide an income in retirement. The Bill currently does not provide information on how pensions will be paid out.

I will now expand briefly on these three points. The first is on a central processing agency. The core principles of a universally available affordable scheme that could be implemented in a reasonable timeframe with clarity on required State investment were well thought through in the pensions strawman, developed over years and published in 2018. The response to the widespread consultation on the strawman was positive and it provided an excellent foundation on which to build a fit-for-purpose Irish auto-enrolment model. However, the auto-enrolment Bill sets out a model that fundamentally differs from that envisioned in the pensions strawman. The strawman had as a core principle the need to provide choice to consumers, choice of provider, choice of contributions and choice of investment manager. However, this key principle has been completely removed from the proposals as set out within the Bill with the creation of a State monopoly.

The proposed model differs in a number of important ways from well-established international comparisons. Therefore, it is in the public interest that the cost and timing for the State to build and deliver the revised model within the timeframes required be thoroughly scrutinised versus established alternatives to achieve the best outcome for future pension members and for the State.

While we are all rightly proud of the many achievements of the State in creating infrastructure to improve the lives of people in Ireland, we can all also point to State builds that commenced with the best of intentions but were subsequently bedevilled by unanticipated complexities, increased costs and significant delays. It is not in any of our interests for that to happen here, especially when there are alternatives available, as set out in the original strawman. We believe the original strawman will be lower cost and lower risk for the State and will be operational sooner for the benefit of pension members.

The change from the pensions strawman will have worse outcomes for women, in particular, as women often have uneven periods at work and take some breaks. The inability to increase pension contributions will put women in the auto-enrolment scheme in a worse position than those within existing occupational pension schemes, which will widen the pensions gender gap. The inflexibility also means the scheme will actually stop members who might want to increase their savings – for example, on approaching retirement – or who might have periods out of work or long-term illness from ever increasing their pensions pots.

Women in Ireland already face a multitude of obstacles in reaching pensions parity with men. The State should not implement a system that embeds this discrimination for generations to come and removes any chances of improvement.

The third point concerns alignment with occupational pension schemes. The members of auto-enrolment should have the same protections and rights as those afforded to existing occupational scheme members and should align as far as possible in benefit structure with occupational schemes; otherwise, it will create cost and complexity for both employees and employers, and difficulties for savers who move from auto-enrolment to occupational pension schemes and vice versa, as they move employment throughout their careers.

Irish Life is fully supportive of auto-enrolment and its core principles. This is really good for Ireland, including an additional 750,000 Irish citizens. However, the necessity for auto-enrolment should not be at the expense of remedying gender inequality and the elimination of consumer choice. These concerns have all stemmed from the change implemented from the pensions strawman, which would have allowed competition in auto-enrolment instead of the establishment of a State monopoly.

Irish Life is strongly supportive of the introduction of auto-enrolment in Ireland. This is a really good thing. It should bring better retirement incomes for generations into the future. However, there is a quicker and more cost-efficient implementation model with better outcomes for members than that proposed within the current head of Bill.

Denis Naughten (Roscommon-Galway, Independent)
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I thank Mr. Bolger. Deputy Ó Cathasaigh is the first member who has indicated.

Marc Ó Cathasaigh (Waterford, Green Party)
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I thank Mr. Bolger for his opening presentation and the much more in-depth document that underpins it. I will raise a number of issues one by one, rather than overwhelming Mr. Bolger with questions. Essentially, Mr. Bolger broke his presentation into three different aspects and my questions will follow each one.

On the idea of a central processing agency, CPA, Mr. Bolger said it was "a State monopoly", which is language that provokes a response. I am of a mind that it is important the State plays a central role. The CPA is explicitly to be set up as being not for profit. Then the fiduciary interest is supposed to be to each individual member of the pensions. The CPA is the organisation that stands between the member and the pensions. I understand that as the pension options are still being provided, there will be at least four registered providers and those registered providers will be within the private pensions market. Does Mr. Bolger's understanding of it differ from mine? I believe that we have almost a clearing house whose job is to gather together all of the information that is necessary to make sure the employer and employee contributions come in. I know that Irish Life has suggestions around whether Revenue should be able to step into that space and I am not sure that I would agree with that. I do not see that people are being inhibited from making choices about their pensions when it is explicitly stated, within the documents, that there will be four registered providers that will proceed out of the CPA.

Mr. Declan Bolger:

I think what the Deputy has described is more like what was set out in the original straw man. I mean the original straw man would have seen that essential process in the agency and that would have been the initial link to the employees, where the employee would have registered with the central pension authority and then would have chosen one of the four pension providers, through that central processing authority. That would have been quite a minimal Bill for the central processing agency and then what one would see is that the industry providers would be responsible for collecting premiums, allocating those premiums to individual pots and managing those investments. What the Bill now proposes is that the actual CPA would collect those premiums, manage those individual pots, manage communications with policyholders, and what one would have is some investment providers that would provide services to the CPA but the individual customer and member would not choose which of those investment managers to place their investment with.

Mr. Oisin O'Shaughnessy:

The core difference between the straw man and the current proposal is the role and the size of the role of the central processing agency. It was quite a thin layer in the original straw man whereas now very much everything is State run. I suppose there will be an investment provider underneath but all of the member interactions, and all the innovations within the product, are not an option now. The private pension providers could have done that in the straw man proposal whereas now it is a kind of a Government-run system with some outsourcing of investment underneath the bonnet. There is no choice for the member in terms of even the investment offering because I believe there will be four investment providers and the returns will be pooled across those four providers and there will be four funds. There will be a lack of members picking different options, a lack of competition and a lack of innovation driving overall product improvements and investment improvements into the future.

Marc Ó Cathasaigh (Waterford, Green Party)
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I understand that point of view but I am not sure that I agree with it. We know that a lot of people who will find themselves in auto-enrolment will find themselves very passively in auto-enrolment. I do not know if I envisage a huge preponderance of those customers sitting down and sorting through different types of pension offerings. Even when I try to renew my own health insurance, for example, I find myself bamboozled so I do not know if an auto-enrolment customer is necessarily going to sit down and take that sort of proactive stance. I think that if they were doing that, they would probably invest in a private pension directly as opposed to this. As that is a perspective that probably is different from mine, it will educate my perspective and is useful in that way.

On the impact on women, the National Women's Council of Ireland has similar concerns. When I dug down into this aspect I realised that a lot of what Mr. Bolger talked about concerned two issues as the people who earn under €20,000 are not automatically enrolled. I note they have the option to opt in, so I wonder about automatically enrolling people who earn that low an income and this is one of the issues that have come through concerning the general scheme. Mr. Bolger might talk to me on this point because we know that the preponderance of people who earn less than €20,000 are women. I encountered a statistic suggest it is 75% .

Another interesting aspect concerns the breaks in payments. If somebody avails of parental leave, for example, then that is a break in his or her payments which will, in turn, impact on that person's ability to amass a significant pension pot. If we are looking at a system where one has that 6:6:2 model of payments being paid in, how do we envision the scheme being able to cope? How does a woman taking maternity leave affect the 6:6:2 model? Are we still asking the person involved to make the 6% contribution, which is matched by 6% still from the employer, who presumably, though not in all cases, is paying out maternity leave at that time and there is also 2% provided by the State? Irish Life has identified a problem as opposed to saying it has come here with a solution but maybe this is something Mr. Bolger would tease out this matter.

Mr. Declan Bolger:

Those are the two points. It is a fact that more women earn less than €20,000 so they do not have automatic enrolment. Part of the bigger point is a lack of flexibility. What one sees in the existing occupational pension schemes is that there is an ability to top up one's pension and people often do that having returned from maternity leave or if they are at a certain point in their career. Women often have less linear careers and they might have periods where they earn more than other periods. Consequently, an occupational pension scheme provides the ability to top up one's pension during those periods. I think what the Deputy seeks, concerning the 6:6:2 model, is that there is flexibility for that to be increased at any stage: possibly before somebody plans to take leave and certainly when somebody comes back from maternity leave. My colleague will supply some extra comments.

Ms Teresa Kelly Oroz:

On the figure of €20,000, we had a look at that as well. I think there was an Economic and Social Research Institute, ESRI, report that identified the split to say that it would obviously impact more women than it would men. There is a question on affordability when you go under that figure and the replacement value of that. Our view was that it probably should be reduced - the entry point of €20,000 is higher than where a lot of international standards have the entry point - to about €17,000 to allow that flexibility come through. The other issue specific to women is part-time employment. Women are more likely to have a number of part-time employments and it is a question of how one tracks those together to make sure that if they bridge the €20,000 limit, they are caught by auto-enrolment.

On flexible contributions, it goes back all the way to advice. Realistically, we know that women are far more likely to have breaks in cover and have unpaid breaks in cover. For anyone who is joining a pension scheme and for auto-enrolment in a pension scheme, you should advise younger men and younger women slightly differently because if they can, they should try to increase their contributions early. Again, the problem with when you take maternity leave is its compounding effect. Taking time out in your 20s and 30s has a much bigger impact on your pension than when you do it later in life.

The heads of the Bill are entirely silent on what happens during maternity leave. Some employers will top up maternity leave and if they do that, the pension contributions flow. If they do not top up maternity leave then there seems to be nothing coming through from the employer. On a credit scheme, again the heads of the Bill are silent on what happens to the State contribution in that scenario but in the UK, in cases where you avail of unpaid leave, they will add a credit to your pension scheme on occupational schemes and on auto-enrolment but we do not do that here at the moment.

Last, there is the employee contribution and, again, the heads of the Bill are totally silent. We know there will be gaps because women will take times off leave. We know they will not be able to increase their contributions based on the current model in advance, which they would have been able to do with the straw man, to smooth that out into the future. We know that when women return, they do not have the capability to either put lump sums in or increase their contribution, or for their employer to increase the contribution. We in Irish Life looked at our own pension scheme.

We realised we had a gap, so what we do as an employer when women return from maternity leave is to increase our employer contribution. This is to recognise that when, coming back from maternity leave, the employee may not have money because it is quite costly. Therefore, we increase our employer contribution for a year to smooth out that gap and to do so as quickly as possible to avoid the compounding effect. None of that is possible under the current model with auto-enrolment because there is such a rigidity to the scheme at present.

Marc Ó Cathasaigh (Waterford, Green Party)
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It is definitely a lacuna in what we have been presented with in the general scheme, as Ms Kelly said, and it is completely silent about these issues on my reading. As for the alignment with occupational pension schemes, it comes back to the central processing agency, CPA, and the fact we envision people moving in and out of this auto-enrolment. It would be hoped, and it will not be the case for everybody, that people would graduate from auto-enrolment and move to an occupational pension, which in the vast majority of cases will be a better pension system for those involved. I would like to give the witnesses more opportunity to expand on that. I do not see a way around it apart from the pot follows the member, which a more super-powered CPA would probably be in a better position to manage rather than people building up individual small pensions as they more from employment to employment. I would like the benefit of the witnesses' experience of how they see the challenges of integrating an auto-enrolment scheme into the occupational pension scheme as people move in and out of those areas.

Mr. Declan Bolger:

It is tricky because there is the issue of how premiums are treated in terms of tax relief versus the State contribution. That results in complications for employees and employers. People could have periods throughout their career where they could be in auto-enrolment and then in occupational pension schemes. That could result in the benefits they will get from them and the taxation of those benefits possibly being different. It could be quite difficult, therefore, for people to plan for what their income after tax will actually be in retirement and what the pattern of that income coming through will be. It introduces complications for employers and employees.

In addition, flexibility is a key part within existing occupational pensions. We often see that people have different earnings throughout their careers and there are times where they can afford to put more into their pension, so the occupational pension scheme allows people to flex up and create bigger pension pots. This is very important for people who start their pensions later. The proposed contributory rates are very sensible for someone who starts auto-enrolment at the age of 23 and works through to retirement, but if someone is coming to this scheme at a later age, he or she would need the flexibility to be able to increase his or her pension contributions. Would Mr. O'Shaughnessy like to add something?

Mr. Oisin O'Shaughnessy:

It is the dual system where there is bonus on one side and tax relief on the other, and the tax bands start to become relevant. The bonus under the auto-enrolment, AE, system is more valuable than the 20% tax relief but less valuable than the 40%. There will be an interaction where we will have customers and members of the population who, at different points in their career for different reasons, should be in one or the other. The way the system is currently proposed, that complexity will have to be managed within the market and by providers who will want their customers to be in the best system for them at a particular time.

As Mr. Bolger said, the fact the tax treatment is different means that amalgamation, the inability to consolidate between the AE pot and the occupational pot they might have built up later in their career, is a key concern. Pensions are already complex and consolidation is something people need to do in any event in the current system where they might have moved jobs and have different pensions. Private providers already handle this consolidation issue, and not everyone does it until they retire, but we do plenty of it in our day-to-day business where people bring a prior pension arrangement into their new pension arrangement with Irish Life. It is possible to do and people sometimes long-finger it, but this system introduces a barrier to that consolidation because of the differing tax treatments between the bonus model and the tax relief model.

Marc Ó Cathasaigh (Waterford, Green Party)
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It goes back to the issue of the €20,000 as a threshold point, because very often that will be a second income in the house, and if the primary income is above €49,000, even if a person is earning below €20,000 and wanted to make pension provision, he or she might be far better off going for the 40% tax relief route rather than the top-up. It is one of the issues I would be concerned about, rolling the auto-enrolment below €20,000. It is one of the complicating factors.

Mr. Declan Bolger:

Employers will need to be able to facilitate both auto-enrolment and occupational pension schemes if they want to act in the best interest of every one of their employees, which obviously introduces complications and costs.

Claire Kerrane (Roscommon-Galway, Sinn Fein)
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I thank the witnesses for their dedication and very detailed submissions. This is obviously a big shift in pensions in Ireland, and as the witnesses have said, it is so important we get it right from the outset. I have a couple of questions. It is quite clear from both submissions, from comments this morning, and from the opening statements that the witnesses appeared more satisfied with the initial straw man and the way it proposed that AE would be rolled out to workers throughout the State. There were a number of submissions made at the time of the straw man's publication, and we made one at the time. What do the witnesses believe changed? They have referenced some of the submissions and the fact they did not perhaps point to what is being proposed now. Will the witnesses speak about what they think may have happened or why, in comparison, it has been almost turned on its head in what is now being proposed in the heads of this Bill?

When the witnesses talk about the CPA, they speak about international comparisons, and it is important to look at how other countries have done this because Ireland is very behind in providing this additional pension tier to workers. Will they speak about those international comparisons in the context how the proposed model differs in important ways from international comparisons? It is also clear from the heads of the Bill that there is an issue around a lack of flexibility for women, and that will be problematic. We already have a gender pension gap and issues around women accessing a full State pension. The issues exist and have done so for a long time. We need to get that right, because when it comes to caring and roles in the home, women have been let down through generations in accessing pensions and a decent income in retirement. That is why it is so important to get this right and to provide that additional tier we know is very much needed, because we know more and more older people are solely reliant on the State pension in retirement and it is not enough as regards adequacy and levels of poverty now. The latest survey on income and living conditions, SILC, data show poverty levels among the over-65s increasing. We have to look at all of that in relation to the new system.

On the point about lower levels of protections and rights that would be provided to AE members, will the witnesses speak more on what that would look like and the impact of that?

Mr. Declan Bolger:

I will take the initial question and then pass on to Mr. O'Shaughnessy and Ms. Kelly. In terms of the change from the original straw man, we provided our submissions on the straw man, but we would not have been involved in the decision-making process between then and now so we do not have any particular insight into why those changes occurred.

There are some quite fundamental changes. The initial straw man had a State role and the State as the initial contact point for the pension member. The State also had a role in advising what options were available. We have seen quite a considerable change. The size of the build the State is now taking on is effectively much larger than what was proposed under the straw man. The straw man would have used the existing pensions infrastructure that has been built up over decades in Ireland to do the core premium collection, the allocation to pots, the measurement of value, and the communication and advice to members, whereas now the State is taking on that build itself. The straw man also had increased flexibility within it, and the normal governance that applies to occupational pensions would have automatically applied.

I will ask Mr. O'Shaughnessy to talk through some of the international comparisons.

Mr. Oisin O'Shaughnessy:

The first thing to say about the insights from the international comparisons is that it is really encouraging in that auto-enrolment works. That is what we see at an international level. It dramatically increases pension coverage and goes a long way towards pension adequacy. This links to Mr. Bolger's earlier comments that this is fundamentally the right direction and that has been proven internationally.

New Zealand was probably the first mover in terms of KiwiSaver and putting an auto-enrolment model in place. We sent a delegation from Irish Life to New Zealand to meet the different providers. To give a sense of the key insights and learnings, the proposed Irish model in this draft of the Bill is unusual by international standards. In New Zealand, inland revenue collects the premiums but that is all it does.

The money is then moved straight away to six providers that have been licensed to be AE providers in New Zealand. Because the New Zealand authorities have largely relied on the private sector, one key learning we can observe is that New Zealand was up and running in about one and a half years from the point at which it was decided to go for an AE model until that model went live. The UK model also leveraged a private market but it also incorporated a national employment savings trust, NEST, as a provider of AE, and stipulated that this would be a provider of last resort. This meant that if a worker did not want to use any of the existing providers, NEST would be there. NEST took four years to build because they built the full infrastructure. The lesson to be learned is that leveraging the existing providers led to it taking one and a half years to build in New Zealand and four in the UK. That is one of our key concerns. We all want this to be up and running, but it takes time when the existing is used. In New Zealand, the authorities supervise the six providers. Providers can fall off the list there and get onto it. We feel that there is quite strong supervision of the providers, and there are requirements. That can all be handled in terms of State concerns about providers. The key lesson around speed was one issue we observed as we looked over it.

There are also lessons in respect of complexity. People would need to be auto enrolled and inertia is a problem with pensions because the benefit is so deferred and feels so far away. One does not want 200 fund choices. The Swedish model took a long time to get to market. That model had a fund supermarket of 200 funds, which just confused people. For its pension holders, Irish Life would tend to want no more than about eight fund choices. We also have a default recommended one. A large percentage of our customer base uses the recommended one. In that way, we guide them through the right investment journey to retirement. Having a more limited fund shelf is a good idea, and this has been proven internationally. Our key point is that the market has this. The market innovates and improves on this over time. In this way, we feel that relying on the existing market, with the appropriate supervision, is the key learning as we look at it. Other jurisdictions such as the US and Australia rely on private providers as well. The Australian model has been up and running since the 1980s and has large assets under investment at this point. They are all largely relying on the private sector. The model that is probably the most different is that which obtains in Sweden. The Swedes had plenty of problems going live, and then probably took the wrong route on the fund offering.

Claire Kerrane (Roscommon-Galway, Sinn Fein)
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I thank Mr. O'Shaughnessy.

Ms Teresa Kelly Oroz:

The gender issues are well flagged at this point. They were raised through the initial straw man consultation, but the issue around flexibility was not there because we would have seen flexibility coming through. We made proposals at the time in respect of the State incentive to say that there should be a credit mechanism that can go into it. We are also aware that the Pensions Council provided the Minister with a report in March of this year specifically on the pensions gender gap, and also flagged concerns through the auto enrolment scheme and remedies that can be done. As the Deputy correctly stated, it is taking a long time for the State pension changes to be implemented with a view to smoothing due to the recognition that careers for women in particular are not linear. It is a little surprising that we are now introducing a new pension scheme and enrolment by trying to implement something where we know we are going to have problems into the future. Even New Zealand, which has much more flexibility, already has a 15% pension gender gap operational. We know that if we do not allow flexibility from the beginning and if we do not deal with what happens in the context of maternity leave and unpaid leave, there will be a gap forthcoming.

The Deputy's next question was on the benefits relating to occupational pension schemes that we also want to see within the AE scheme. Under law, every occupational scheme must provide either access to additional voluntary contributions, AVCs, or a personal retirement savings account, PRSA, that allows additional AVCs. This allows a person to increase his or her contributions. We are putting in place schemes and trying to encourage savings, and yet we are blocking any additional savings that can come through as a result of the rigidity of the model. There are other things that we see through the defined contribution schemes. We are assuming that this will be a master trust and that the trustee provisions are there, but this is not clearly specified through the heads of the Bill either. There are things we would automatically see such as disclosures we would give to members and help we would give to members, for example, annual benefit statements that project forward and tell a person that if he or she continues saving at current rates, this is what will be expected at retirement and what the income will be. The statement will also indicate what the expected income will be if a person increases or reduces his or her their rate. At the moment, we do not see any of those types of disclosures being highlighted or completed in alignment with what we would see in the context of normal occupational schemes.

Mr. Declan Bolger:

There is a very robust system of governance for pensions in Ireland, particularly in the context of how one advises and communicates with customers. Also, existing schemes deal with the periods before retirement and post retirement, whereas the proposed Bill deals only with the period before retirement and accumulating the pot. There is nothing in the general scheme about what will happen post retirement. The existing schemes would obviously cater for the pre- and post-retirement phase.

Mr. Oisin O'Shaughnessy:

The committee will be meeting representatives from the Pensions Authority later this morning. The authority would be the regulator of this. It is not clear from the heads of the Bill how this scheme would be regulated or what kind of legal structure it will have. What are emerging in the market currently are master trusts and institutions for occupational retirement provision, IORP, regulations from the EU that have been implemented. As Mr. Bolger said, there are policies for workers and members with high levels of protection and high levels of governance around risk and supervision, audit supervision, conflict-of-interest policies. There are high levels of trusteeship of the money that is being minded for workers until their retirement. This bar is so high that we have a concern about the lack of clarity regarding the legal structure for the AE pot of money and who will oversee it. Will it involve the same level of governance and the high bar that rightly exists in the context of private occupational pensions?

Denis Naughten (Roscommon-Galway, Independent)
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Does Deputy Kerrane wish to comment further?

Claire Kerrane (Roscommon-Galway, Sinn Fein)
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No. That is it. Thank you.

Denis Naughten (Roscommon-Galway, Independent)
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Before the witnesses finish giving their evidence, I will ask a couple of questions relating to their international experience. They have obviously looked at what is happening elsewhere. In the context of the gender differential, is there a model in place at present that would be effective in dealing with that? The witnesses referred to speed when establishing a fund and that New Zealand is a good example in this regard. However, that it is a poor example of the gender differential. We all know it is important that we get this right. Whether it takes 18 months or 48 months to get it up and running, this is something that will be in place for generations to come. We need to ensure that we get it right. One of the issues committee members have raised at previous meetings is that relating to fees. There is a cap set on the fees under the auto enrolment at 0.5% of the overall fund. Charlie Weston published an article in the Irish Independent with the headline that €6 out of €10 of pension fund pots is consumed by charges. This led to the Bill from Deputy Ged Nash, which has passed Second Stage in the House, in respect of transparency around charges. The committee is genuinely concerned about this matter. We do not want to see people working and investing money in a pension pot that is only being used to fund the fees and the operation of that fund rather than actually delivering long-term pensions. What are the models out there that can deliver what we want to see happening in an effective manner without excessive charges being imposed on the customer?

Mr. Declan Bolger:

The initial straw man proposal had the cap for fees, but that cap is not in the general scheme. Under a State-run model, there is no cap proposed on what a pension fund member can be charged. If we look at typical larger existing occupational pensions schemes - as AE would be - at that 50-basis-points fee would be in or around what schemes are currently being charged. I will ask Mr. O'Shaughnessy to comment on the international experience.

Mr. Oisin O'Shaughnessy:

We believe that the 50-basis-points fee is a good level and a good idea, and we would be supportive of it.

As Mr. Bolger said, it fits. Our large schemes come in with an average charge under 50 basis points, BPs, and that feels like the correct level for a scheme such as this. If we compare that internationally, the UK has a 0.75% charge limit, although competition has driven that lower, so the experienced rate in the UK is below that figure. Similarly, in New Zealand, there is a maximum charge of 1%. We think the 0.5% stated in the straw man proposal is the correct level and it compares favourably internationally. We would not have a concern about that if we were going with the straw man proposal, and if auto-enrolment were to be delivered through the private market, we would not have a problem with the figure of 0.5%. We think that would serve members well.

Mr. Declan Bolger:

If the State is taking on the cost of the full build of an end-to-end pension system, and if members pay 50 BPs, or 0.5% per annum, on that, it will take an awfully long time for that to recover the cost of the build. It would definitely be more expensive for the State to take on an end-to-end build, and it will be important that members do not pick up that cost if that is the way things go.

Mr. Oisin O'Shaughnessy:

If auto-enrolment goes live, for the average worker who contributes in the first year, that charge of 0.5% will amount to €4.75 per year. Obviously, that will build up as the worker's fund builds up but that is the level of charges we are talking about. NEST has so far cost the UK Exchequer more than €1 billion. The figure is currently about €1.1 billion or €1.2 billion but it is heading towards €1.5 billion, so that has been a significant investment. When we were looking at the straw man proposal, we felt that the break-even would not occur until after year 10. There is a significant upfront cost. Because the contribution levels build up slowly, as do the funds being managed, the fee levels are low in the initial years but the investment is all upfront. In our proposal, we have outlined a cost-benefit analysis of the various ways this can be delivered because we believe there is a high State cost involved in the way it is being proposed and there was a lower State cost for the straw man proposal, given the infrastructure was already in place within the private market. Nevertheless, it is a long-term game in either scenario, owing to the low fee levels and the upfront investment.

Ms Teresa Kelly Oroz:

As for international comparisons on the gender side, the two main issues that affect the pensions gender gap relate to the salary gap, so anything that can be done in that regard would be good, and the periods of unpaid leave. As for what has worked well internationally, the UK gives a credit into pension schemes when workers are on unpaid leave, which is not done here for occupational schemes. Moreover, nothing has been said about what will happen here in that regard with auto-enrolment.

Another mechanism for schemes in the UK allows up to a certain percentage to be invested, in a tax-efficient manner, by a partner. If someone is on periods of unpaid leave but his or her partner is still in employment, and if the person has capacity to invest additional sums, his or her partner can invest a certain sum, in a tax-efficient manner, into that person's pension scheme.

The third issue relates to maternity leave and, in particular, unpaid maternity leave. The ESRI published a report on maternity leave in Ireland in 2022. While the period of leave was deemed to be generous, the level at which maternity leave is paid by the State was found to be low, and in the scenario where a person’s pension is not topped up on maternity leave, the gap increases. This is where the flexibility regarding the contribution model becomes even more pertinent because it would mean there would need to be some capability, given the gap will be wider, to be able to make additional contributions.

The other big issue for auto-enrolment and occupational schemes relates to the education of young women in respect of the consequences of taking periods of unpaid leave and how, if they can afford it, they should start with a higher contribution. Personally, when I went on maternity leave, I worked out how much income I would lose and how I would cover those costs, and it did not dawn on me that I should look at the impact it was going to have on my pension scheme. It was only years later, when I started working in pensions, that I realised I had a gap and needed to increase my contributions. Advice and information has to be critical in this regard in order that people will be aware of the consequences of taking periods of unpaid leave.

Denis Naughten (Roscommon-Galway, Independent)
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I thank our guests from Irish Life for their constructive and positive engagement with the committee and for their detailed written submission.

Denis Naughten (Roscommon-Galway, Independent)
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Our second engagement is a continuation of our pre-legislative scrutiny of the general scheme of the automatic enrolment retirement savings system Bill 2022. I welcome the following officials from the Pensions Authority: Mr. Brendan Kennedy, the pension regulator and CEO; Dr. David Begg, chairperson; Mr. Andrew Nugent, head of policy; and Ms Gillian Smith, assistant head of policy.

Before we start I wish to explain some limitations to parliamentary privilege and the practice of the Houses as regards any reference witnesses may make to another person in their evidence.

The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected pursuant to both the Constitution and statute by absolute privilege. Witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative they comply with any such direction.

I now call on Dr. David Begg to make his opening statement.

Dr. David Begg:

I thank the committee for the opportunity to discuss the draft heads and general scheme of the automatic enrolment retirement savings system Bill. My colleagues have already been introduced so I will not do that again. I will briefly outline for the committee the role of the Pensions Authority.

The Pensions Authority is a statutory body set up under the Pensions Act of 1990. Its role is to supervise compliance with the requirements of the Act by trustees of occupational pension schemes and trust retirement annuity accounts, RACs; personal retirement saving account, PRSA, providers; registered administrators, RAs; and employers. We also investigate suspected breaches of the 1990 Act; conduct on-site inspections and compliance audits; instigate prosecutions and other sanctions where breaches of the Act are found to have occurred; provide policy advice and technical support to the work of the Minister and the Department of Social Protection; provide relevant information and guidance to the public and those involved with pensions; and deal with inquiries received from scheme members, trustees, employers, the pensions industry, the general public and, indeed, the media.

Turning to the matter of the automatic enrolment Bill, the Pensions Authority welcomes the publication of the general scheme of the Bill. The introduction of automatic enrolment in Ireland is a welcome step and the authority is very supportive of this particular Government policy. In welcoming automatic enrolment, it might be useful to stress to the committee that the Pensions Authority does not have a direct role in the development of this policy but the authority has given technical assistance to officials in the Department of Social Protection. Clearly, therefore, we will not be able to comment directly on the policy choices which have been made to date.

As committee members will be aware, pension provision in Ireland consists of three broad pillars: pillar 1 is the State pension; pillar 2 is occupational pensions provision; and pillar 3 is personal pensions and additional voluntary pension savings. This approach is similar to that in many countries with a multi-pillar approach to retirement savings being advocated by the OECD and the World Bank. The use of multi-pillar systems is a widely accepted model for pension system design and reform. Bodies such as the World Bank, the OECD and, indeed, the International Labour Organization, advocate a multi-pillar approach with each pillar complementing the others to reduce risk and improve total retirement income.

Currently in Ireland there is no obligation on employers to offer an occupational pension, although since 2003 employers are obliged to make a personal retirement savings account, PRSA, available for employees where there is no occupational pension provided, but there is still no obligation on an employer to actually contribute to a PRSA.

As a result of the voluntary nature of occupational pension provision, pension coverage in Ireland is quite low. In its latest publication, the Central Statistics Office estimates 56% of all workers have a workplace or private pension to supplement their State pension - 90% of public sector workers do - compared to just over one in three workers, or 35%, in the private sector. This low coverage will mean that many workers will face a significant drop in living standards in retirement. By far the greatest predictor of whether a worker will have a pension or not is if their employer offers one. Therefore, in our view, it is vitally important that the Government enacts this legislation and introduces automatic enrolment as soon as possible to ensure the pension coverage rate in Ireland increases. The international experience in most countries that have introduced automatic enrolment shows it can overcome the inertia of people not getting around starting a pension and leads to an increase in pension coverage.

The introduction of automatic enrolment will be a welcome and important part of the Irish pension system for the coming decades. It will help address the problems arising from the changing demographics facing Ireland where an increasingly greater proportion of our population will be over the age of 65.

Turning to the draft Bill, I note the draft heads provide that the authority will be appointed as the competent authority responsible for the prudential supervision of the central processing authority, CPA, pursuant to the provisions set out in Part II A of the Pensions Act 1990. We think this is a right and fitting thing to do and that the CPA, as envisioned by the draft legislation, will be treated like any other institute for occupational retirement provision, IORP, as it is called in the vernacular in the industry, and will be regulated as any other pension scheme will be. This will include matters like governance and disclosure to members and will mirror the responsibilities of pension scheme trustees set out in the Pensions Act. It is important that those people enrolled in the automatic enrolment system will have the same levels of protection afforded to members of other pension schemes.

I thank the Chair for the opportunity to appear before the committee. My colleagues and I are happy to assist committee members in their deliberations in any way we can by answering any questions or providing any further information requested.

Denis Naughten (Roscommon-Galway, Independent)
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I thank Dr. Begg. The first member who has indicated is the Leas-Chathaoirleach, Deputy Ó Cathasaigh.

Marc Ó Cathasaigh (Waterford, Green Party)
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I thank Dr. Begg. I understand even from his opening statement that what he feels he is able to comment on with respect to this Bill might be quite limited. We had a statement that kind of amounted to Fr. Jack's that would be an ecumenical matter, perhaps, if I understand it properly. I will stay relatively specific in terms of the heads of Bill that actually deal with the Pensions Authority functions. If I am right in my reading of the Bill, it is only head 56 that mentions this, which is part 14 on supervision, and it is relatively brief. A concern was raised in a previous session that perhaps there is not enough detail on the role of the Pensions Authority and how it would interact in particular with the CPA. Really what we have here is that the Pensions Authority shall be appointed as the competent authority responsible for the prudential supervision of the Central Processing Authority, pursuant to the provisions set out in Part II A of the Pensions Act 1990. I must admit I did not go as far as chasing down Part II of the Pensions Act 1990 to have a look at what is laid out there.

My central question is on whether we have enough detail at this very early stage of the Bill on how the Pensions Authority is going to interact with the CPA. Is Dr. Begg happy that this is set out enough from his point of view?

Dr. David Begg:

As the Deputy said, the main functions of the authority are set out in head 56 of the Bill but there is also reference to our role in three other heads. Under head 4, which is the general terms of the Bill, we have a function in terms of schemes considered to be proper occupational pension schemes where the employees of these companies therefore need not necessarily go into automatic enrolment. That is one of the functions. Head 68 is another one which designates that the scheme is an institute for pensions provision and is therefore covered under the European Union directive and the domestic legislation giving the Pensions Authority a role in the supervision. There is a further reference in head 69 to certain amendments to the Pensions Act facilitating, as it were, the involvement of the Pensions Authority. From our point of view, it is as comprehensively covered as is needed.

The main thing frankly is that the CPA will be treated exactly the same as any other master trust in the State and that we have the freedom, or not so much the freedom but the obligation, under the 1990 Act and the legislation regarding the European Union directive to apply the same standards to the CPA, as we would to Irish Life or to any other company.

Marc Ó Cathasaigh (Waterford, Green Party)
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Dr. Begg is content essentially that the provisions within the draft heads are strong enough for the Pensions Authority to exercise its role.

Dr. David Begg:

I think so. At the moment, yes.

Claire Kerrane (Roscommon-Galway, Sinn Fein)
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I thank Dr. Begg for coming before the committee and for his opening statement. Obviously, the Pensions Authority has a very important role as an authority when it comes to pensions in Ireland and this is very much something very new and it will be very new to an awful lot of workers out there who are more and more are reliant on their State pension. We really need this additional tier, and it is so important we get it right.

Like Deputy Ó Cathasaigh, I am unsure how much Dr. Begg can comment in this regard but I ask him to speak on his impression of the heads of Bill, how auto-enrolment will look and how satisfied he is in respect of its roll-out. His opening statement referred to the need for this to be rolled out as quickly as possible. Obviously, there have been long delays to the roll-out of auto-enrolment and we are still a little bit, if not a long way, off its introduction. Issues have been raised on a gender aspect to this issue and the difficulty for women in particular, who take time off in some cases, such as for maternity. The Bill does not address issues such as that and there could be a difficulty relating to the lack of flexibility for people entering auto enrolment as it is outlined. Again, I am not sure how much Dr. Begg can comment in that regard but it would be good to get his views, given the responsibility of the Pensions Authority in respect of what is outlined and what auto-enrolment will look like in the context of workers and its roll-out moving forward.

Dr. David Begg:

I thank the Deputy for her question. As she stated, we do not want to stray too much into the policy area but with that qualification, the first thing to say is that I do not see auto-enrolment as the panacea for all problems, if one likes, in the labour market. Some of those are really important difficulties, as the Deputy outlined. One of the ways we have to look at this is that the perfect could be the enemy of the good. It is important to get this thing rolling for reasons of the demographic shift that is taking place in Ireland. As we go on, changes can be made. There is a provision under head 59 for further changes to be introduced or further developments in terms of pensions products as we go along. We must remember that in practical terms it will be ten to 15 years before there is sufficient money in this fund to really make a difference for anybody.

The gender dimension is an important consideration. A certain amount of thinking has been done on this and it is encompassed in the academic literature. I can provide references to that if the Deputy is interested. In general, the gender pay gap in OECD countries is 28%. It is 26% in Ireland. Strangely, it is 34% in the United Kingdom. There has been suggestion that a lower entry point would be more helpful in trying to deal with the pensions gender gap but in the United Kingdom, the threshold figure is set at £10,000, as distinct from €20,000 in our case. If one looks at occupational pensions coverage for those at work, it is reasonably gender balanced, at approximately 57% men to 55% women. Part of the reason for that is there is a good concentration of women in the public service, for instance, who at one level may have better pensions than men working in the ICT industry, for example. At the lower end of the scale, there is a significant difficulty. If one uses the national minimum wage, which has just gone up to €11.30 an hour, as a criterion, that would be just over €23,000 a year. The threshold for auto-enrolment, at €20,000, is lower than that. In terms of the figures, there are 137,300 people in the State receiving the national minimum wage, of whom 75,900, or 55.3%, are female and 64,000, or 45%, are male. To that extent, one can see there is a greater concentration of women in some of the lower-paid employments. To a large extent, that has to do with part-time employment being a factor. An interesting paper published in October 2019 by Bercholz, Bergin and Tim Callan for the ESRI, stated:

With the €20,000 earnings threshold, our estimates suggest that about 57% of those auto-enrolled would be men. This arises because women with incomes above €20,000 have higher pension coverage than men – largely due to higher numbers of women in public sector jobs.

If the threshold were dropped to €14,000, that would adjust the numbers slightly, in that the percentage of men would go down to 52%. There is an effect there. The biggest difficulty is that when one gets into that region is that, although it is not being imposed given that there is an opt-out, it is very difficult for people at that level of remuneration to pay anything extra into a fund.

Another matter worth considering is that if the overall objective of auto-enrolment is to get a reasonably decent replacement rate for final salary in retirement, the State pension is much more important for people in that category. It may be that the difficulties the Deputy rightly points to could better be addressed by ensuring that women can qualify fully for the State pension. We have legacy difficulties in that area. As the Deputy is aware, since 1994 some provision has been made for people taking time out. One can get a 20-year allowance in the total contributions approach. Nevertheless, there are still legacy difficulties and, at a minimum, we could best deal with that issue by ensuring that every person on the low pay situation is at least captured by the State pension scheme. That would be a better policy remedy than trying to fit the auto-enrolment to try to deal with that problem.

Denis Naughten (Roscommon-Galway, Independent)
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Dr. Begg is making the point that we need to introduce this as quickly as possible. The committee previously heard evidence from the pension industry, which has suggested going down a road similar to that pursued in New Zealand, where, in effect, it is light-touch control from a government perspective. The government just administers the fund, in that it distributes it to the various companies to use it. The proposal we have here under auto-enrolment is more like the Nordic or UK models, where there is far more state control in terms of how that money is invested. The industry is saying to take the approach we are taking would take a minimum of 48 months to establish but if we were to take the approach where, in effect, the State only gathers the money for the pension industry, it could be operational within 18 months. I invite Dr. Begg to comment on that in the context of the evidence he has given.

The Pensions Authority has considered examples of what works well in other jurisdictions. I ask Dr. Begg to indicate the benchmarks among OECD countries in terms of a model that would meet the requirements we have here in Ireland.

This may be an issue more for Mr. Kennedy than for Dr. Begg. I refer to the capacity and resources which the Pensions Authority has to regulate and manage this substantial fund we are discussing.

The industry has indicated that a fee cap at 0.5% of the overall fund is going to make it very hard to get a substantial fund like this up, running and operational, and to meet the legal requirements that are set out and overseen by the Pensions Authority. The fear is that if we follow the approach that is being taken here, a significant amount of the funds put in by individual employees will have to be consumed to actually get the structures up and running. From the point of view of the Pensions Authority and its role in regulating the industry, do the witnesses believe that meeting the requirements of a substantial new fund based on a fee cap at 0.5% is achievable?

Dr. David Begg:

First, I will address the question of what worked well in other countries. To some extent, we have had a slight advantage in Ireland in that we are the last of the OECD countries to move into this area. People in business often talk about first mover advantage. We might have last mover advantage in the sense that some of the difficulties that were experienced elsewhere have been comprehended reasonably well in the heads of the general scheme in trying to set the right parameters for it and in trying to set the opt-out arrangements while preserving some degree of voluntary participation and, at the same time, trying to nudge people in the right direction. It is what is referred to in the literature as libertarian paternalism, namely, to nudge people in the right direction to get them to do the right thing. I would say that the balance has been struck reasonably well in that regard. For example, one of the big difficulties in the UK have is that if people move from job to job through their working lives, they have a series of different pension pots. Trying to co-ordinate those pots is quite difficult. At present, the UK authorities are talking about the concept of a pensions dashboard in order that people will be able to see exactly what they are entitled to. The Irish authorities have taken a different approach. They have taken the approach that the pot follows the employee. In other words, they can take it with them wherever they go. The Irish authorities have picked up on quite a few of the difficulties in other jurisdictions and have incorporated ways to deal them as much as possible.

It is important so say that this approach is not a panacea, particularly because the difficulty of defined contribution schemes of any sort is the individualisation of risk. Looking at what has happened in this country or the world over the past 30 or 40 years, we used to be in a space where we had collectivisation of risk in defined benefit schemes. The risk was entirely borne by the employer. With the advent of what could be described as shareholder primacy and the introduction of rules such as financial reporting standard 102, which requires companies to put these liabilities on their balance sheets, there has been a definite movement away from that to the point where risk has been individualised. The individual cannot possibly cope as well because people do not have the interest, knowledge or the experience to be investors. Therefore, it is quite difficult. Auto enrolment is, in philosophical terms almost, an attempt to find some kind of middle ground where auto enrolment will pull people in, deal with the problem of inertia that people have in going into pension schemes, and at the same time give them a degree of autonomy over their own affairs. It is not a perfect situation by any means. My view is that, ultimately, we will have to find a better way of dealing with the collectivisation of risk. I cannot remember which particular head provides for it - it might be head 59 or head 56 - but to be fair to the drafters of this general scheme, they have made provision for the possibility of introducing refinements as we go along. These will not become acutely necessary for perhaps ten to 15 years because the fund will not be of such a value as to be useful, but by that time some of initiatives which are currently being probed in countries like the Netherlands will have come to fruition and we will be able to get to a better situation there to minimise the risk at least. However, we cannot disguise the fact that enormous shift has taken place over the past 30 or 40 years. In answer to the Chairman's question, the drafters have done as well as they possibly can to pick up on the experiences of other jurisdictions and to be as pragmatic as possible.

On the timescale, I think it is challenging to do what has to be done to establish the central processing authority, for instance, and to get all the legislation and so on through. At the other end of the spectrum, we have been talking about auto enrolment for quite a long time. It featured strongly in the pensions roadmap in 2018. It is for that reason that the Pensions Authority feels it is necessary to drive through on that quite quickly. It is one of the six strands of the pensions roadmap. There are other things that need to be done, such as the consolidation of the pensions industry here. For example, there are 160,000 occupational pension schemes in this country, most of which are single-person schemes. The onerous requirements of the EU directive mean that most of those schemes, in their own way, could not really be sustainable. What we would have to do to comply, in a regulatory sense, with the directive, would make it impossible to sustain them.

The advent of master trusts means that there is a possibility to make these into a multi-employer instrument and to take the numbers down substantially, and in the process reduce charges and get a better level of supervision. It is interesting. I mentioned the Netherlands. The Netherlands has a population of 16 million and 400 pension schemes. The members can see my point. We have 50% of all pension schemes in Europe, while representing 1% of GDP. I do not want to stray too much outside of the brief today, but the reimagining and readjustment of the pensions landscape in Ireland is an imperative, particularly with the changing demographic. When we think about it, in 2010 we had a ratio of something like 2.1 pensioners for every five people working. That ratio will have shifted significantly by 2050, I think, to more or less double. There is an imperative to move very quickly, and indeed, for our country as a whole in areas such healthcare. The Chairman is very interested in healthcare provision. That is another huge area. Taking a simple point, if we do not get pensions right this ageing cohort of people, who may have paid for private health insurance all their lives, may not be able to pay for it in retirement if they do not have decent replacement incomes.

That is a rather long-winded response to the Chairman's two questions. I am trying to emphasise that there is an interdependent relationship between a lot of these things, and for the sake of the country, we need to move as quickly as we possibly can on it. The Chairman indicated that Mr. Kennedy might deal with his other points about fees.

Denis Naughten (Roscommon-Galway, Independent)
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The numbers.

Mr. Brendan Kennedy:

Following on from what Dr. Begg said and in the context of the question as to whether we should follow the New Zealand model or a more centralised model, the point about the consolidation of Irish pensions is very relevant because the pensions sector here is in the process of changing.

If the approach was adopted of a light-touch structure that directed people into the pension sector as it currently is, you would be directing them into a sector that is in the process of change anyway. It is not quite a like-for-like comparison. It is appropriate that the overall approach here, as we have seen, is that the central processing authority being essentially treated like any other pension scheme is the most efficient way of doing it. We do not need to invent something new here but to ensure that in creating the central processing authority, that it is modelled on what is the best provision within pensions.

To answer the capacity and resources question and its effect on the Pensions Authority; from the authority’s point of view, there is not a significant resource or capacity issue created by the central processing authority. We have about 15 master trusts, which as Dr. Begg described are large schemes catering for many employers and, essentially, the central processing authority will be one more master trust. In time it will be the biggest and most important master trust but it will not create any new issues for the Pensions Authority which do not exist with any other master trust. There is a long road to go but I imagine that in staff terms, it may be two or three people, if one aggregates this across the authority. This is not at all significant for the Pensions Authority.

On the related issue of the likely cost of the charges levied on auto-enrolment and whether they are adequate to build a sustainable and robust system; if we look at comparisons within Ireland, one of the challenges is that because there are so many pension schemes in Ireland, getting reliable, representative data about such schemes is an enormous challenge. Work led by the Department of Social Protection in 2012 in particular, which looked at the typical cost of pension schemes, demonstrated an enormous range. The most efficiently-run pension schemes had the lowest charges of 0.5%. This percentage is certainly possible and practical.

The specifics, as further detail emerges in the final Bill, as to what exactly automatic enrolment will require will have an effect. It is definitely true that it will take time to build up the funds within the CPA for whoever is administering this, to the extent that capital is spent on creating the systems. There will be a need for a reasonably long payback period which, obviously, makes life more complex. Certainly, one can say that 0.5% does not look unreasonable.

Denis Naughten (Roscommon-Galway, Independent)
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Reading between the lines here, Mr. Kennedy is saying that this will require an upfront capital investment from the State to put the overall structure in place if we are not going to use individual contributors’ funds to put a structure in place and then, over time, that the State would get its return back through that fee.

Mr. Brendan Kennedy:

It would not necessarily be the State which would have the upfront capital. If the administration of this is being outsourced, then it will be the outsourced entity or entities which would be required to make the capital investment. The charge would then have to be enough for such entity or entities to consider it worthwhile to make that capital investment, and to be reasonably happy that they could recoup it.

Dr. David Begg:

I wish to clarify one thing that I said on the demographic trends where I gave some slightly wrong information. The longitudinal study on ageing, TILDA, which is carried out by the ESRI and Trinity College Dublin, said in 2010 that the ratio was 5.4 workers to one pensioner. The projection is that by 2055, this ratio will be to 2.3 workers to one pensioner. There is a qualification on that, in that this largely depends on other factors like immigration and fertility rates. I believe that fertility rates here at the moment are at 1.84 and the replacement rate is approximately 2.1 and that will probably not change very much. We do not know, however, how immigration will pan out in the future but that is the best forecast we have.

Denis Naughten (Roscommon-Galway, Independent)
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There is one other factor in that regard, which is participation rates. This comes back to the broader issue where we were talking about gender earlier on. While the projections of the ESRI in that study were that participation rates would increase minimally over time, we have seen during lockdown and the Covid-19 period that there was a 2% increase in participation rates in this country, which was a phenomenal jump. If we can increase incrementally over the next 30 to 40 years at even a fraction of that, we will deal with a substantial part of the deficit there in respect of our State pension. That is something that committee members included in their submission to the Government, which was taken on board by it in respect of the pension age issue that was dealt with before.

Dr. David Begg:

I agree with the Chairman that this is a valid point because actual participation rates in Ireland historically have been quite low. I may be wrong about this but at one point I recall it was around 62%. It dropped off for a while and came back up again. In terms of percentages, the Nordic countries have participation rates in the 70s. What the future of work will be like will be interesting because it is possible that hybrid working will allow many more people to come into the workforce.

Denis Naughten (Roscommon-Galway, Independent)
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I thank all of our witnesses for their evidence here today and for their positive engagement with the committee, which was very interesting and useful. The committee will shortly in private session discuss our future consideration of the submissions which are before us and the oral evidence we have heard. We are anxious to make a submission to the Government on this proposed legislation early next month. I thank those in attendance again for their time here.

Dr. David Begg:

I thank the Chairman very much.

Denis Naughten (Roscommon-Galway, Independent)
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That concludes the committee’s business for today. The committee now stands adjourned until next Wednesday, 25 January, when we will continue our discussion on the auto-enrolment Bill with IBEC and the ESRI.