Oireachtas Joint and Select Committees

Wednesday, 25 January 2023

Joint Oireachtas Committee on Social Protection

General Scheme of the Automatic Enrolment Retirement Savings System Bill: Discussion (Resumed)

Photo of Marc Ó CathasaighMarc Ó Cathasaigh (Waterford, Green Party)
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Apologies have been received from Senator Gavan. Members participating in the meeting remotely are required to so from within the Leinster House complex only. I ask members and witnesses to please turn off their mobile phones or ensure that they are on silent mode. I ask members participating remotely to use the raise hand function on Microsoft Teams if they wish to contribute.

The meeting has been convened to continue our pre-legislative scrutiny of the automatic enrolment, AE, retirement savings system Bill. We will engage with representatives from IBEC in a moment.

Automatic enrolment has been discussed for decades in Ireland. We are currently the only OECD country that does not operate an AE 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, which is co-funded by their employers and the State.

The decision to implement an AE system is consistent with the key recommendation contained within the OECD's review of the Irish pensions system published in 2014. The single greatest goal in Irish pensions policy should be to increase the supplementary payment 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 to 2023, in which it confirmed an intention to develop and implement a State-sponsored supplementary retirement savings system into which employees would automatically be enrolled. In June 2020, the Programme for Government: Our Shared Future reaffirmed the commitment to introduce an AE system. In line with this commitment, the Government approved the final design principles in March 2022. The Government has now approved the general scheme for the automatic enrolment retirement savings systems Bill. It is in this context we are scrutinising the general scheme. I welcome to the meeting representatives from IBEC, Mr. Fergal O'Brien, executive director, lobbying and influence and Ms Aoife McFadden, senior employment law solicitor.

Before we begin, I will 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 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 a witness's statement is potentially defamatory in relation to an identifiable person or entity, the witness will be directed to discontinue such remarks. It is imperative that witnesses 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. O'Brien to make his opening statement.

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.

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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I have a few random thoughts. The State contribution is proposed at one third of the employer contribution. My understanding is there will be no tax relief on that. At present, if one is paying 40% tax, one gets 40% off. Does Mr. O'Brien think it is an anomaly in the scheme that the State contribution is, and will continue to be, bigger for those who are wealthy, not only because they pay more in and, therefore, get more tax relief, but because it will be at a higher rate of 40% on marginal income? Is that an anomaly that should be addressed? Mr. O'Brien said he is against the upper limit of €80,000. What is the reason for that? Will he explain why he is against it? It does not seem a very high limit to me. Many people earn €80,000, especially in the high-tech industries, at a very young age. What is the thinking on that?

Mr. O'Brien made a valid point about employers paying. However, that is a query I have about the system of paying in today and getting out in 30 years and having inflation biting in to that.

We were given figures on what people will get in 30 years but they forgot to tell us that there would have to be an adjustment for inflation to get the real value.

I understand the introduction of pay-related PRSI for jobseeker’s allowance is under consideration. Most of the people who will be caught in auto-enrolment will not be drawing from the system for 30 years. The State, the employer and the employee will pay into it. For approximately 30 years, or perhaps 25 years on average because some people will not be caught by auto-enrolment at a young age, it will all be money going in with nothing coming out. However, if we improved the pay-as-you-go system, which is very efficient, perhaps even making it pay-related, it would pay money out in real time, which would mean it is inflation proofed. That would not be as good for the pensions industry, of course, because it would not get its hands on wads of everybody’s money. Those are just a few random thoughts. What is Mr. O’Brien’s view on them?

Mr. Fergal O'Brien:

I thank the Deputy for his observations and questions. On tax relief, we have identified this as an anomaly in the proposals. We have a significant pensions coverage issue. At the same time, we have an existing model of occupational pensions that is working reasonably well where we have coverage. It is important, therefore, that we do not break that element of the Irish pensions system which is working effectively. We caution strongly against any uncertainty in relation to existing tax treatment. IBEC has seen directly the impact of previous uncertain and volatile tax changes to the pension system, specifically in relation to the pensions levy and the impact that had on trust within what the Deputy rightly described as a long-term public policy and system of contributions. If we break that trust, our entire pensions framework will be under threat.

There is an anomaly, as the Deputy rightly noted. It was our view that all pensions and savings products should be treated equally. We would have preferred to see equal treatment on the basis of the existing tax relief model. We see the merit and simplicity of the one-in-four approach proposed for the State's contribution. We will have to accept the fact that there is an anomaly, but it is important that we do not break that element of the occupational pensions system that is working. In some cases, we will have a model where there will be better supports for individuals within auto-enrolment and we will have a model where there will be worse supports for higher income earners.

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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How can they be better? Theoretically, people on a 20% or 0% income tax rate could be paying into a pension but in reality we do not find that.

Mr. Fergal O'Brien:

On what we are hoping to achieve in terms of coverage, we would expect to see people coming into an auto-enrolment system who should get a better contribution from the State under this model than they would under the existing tax system. These are the people who are not currently contributing.

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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Yes, but they still will not get anything like the big boys.

Mr. Fergal O'Brien:

They will not get the same contribution that higher income earners will get but what they will get will be better than what they get within the existing tax system.

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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As somebody who deals mainly with people on low incomes, I see this is another case of giving a little bit extra but not parity.

Mr. Fergal O'Brien:

We are significantly improving what is currently available, which is a positive step forward.

On the issue of the cap, we have always seen this as a low-cost, entry-level scheme. We are trying to grow a strong and positive savings habit for employees. We think that will be focused on lower to middle-income earners. As I said, we remain particularly concerned about the administrative cost on employers. In our engagement with members, two issues keep coming back to us. One is that they will have additional labour costs in terms of the contribution, but they accept that is necessary for the future sustainability of our pensions system and the economy. They are going to be our future consumers and we have to make sure they have adequate incomes in retirement. There are also concerns about what the administrative costs will be and what degree of opt-in and opt-out will employers deal with in their place of employment. We believe, therefore, that we should focus the scope on low- to middle-income earners. It was our view that we should increase the cap of €50,000.

In relation to the Deputy’s point about whether the State system should be auto-enrolment and whether there is a role for the pensions industry, right now we have a multi-pillar system. We think advancing the multi-pillar system further is the right public policy option in terms of occupational pensions that are working. In terms of the State pension, it is crucial that whatever else we do within this model, the level of percentage income contribution we have from the State pension replacement rate in the future remains the same and as strong as it is today. It is important, therefore, that we do not introduce an auto-enrolment system that comes about to the detriment of the State pillar. That has to be a key element. A range of fiscal and economic choices will have to be made by current and future Governments to ensure that happens. We will also see middle-income workers, including, for example, lots of workers in their 50s who do not have pension provision, entering this scheme. Those benefits will come back into the economy within ten or 15 years of the commencement of the scheme.

Photo of Paul DonnellyPaul Donnelly (Dublin West, Sinn Fein)
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Mr. O’Brien may already have answered this question, which is on the contributions from employers and employees. He spoke about engagement with employers. Will he elaborate on the suggested contributions or their scale and concerns IBEC may have in that regard?

Mr. Fergal O'Brien:

Yes, we have received a lot of feedback on this. It is hard for any of us to know. Even the actuaries will disagree on what the magic number is. When we look at the proposal here and the proposed contribution rates for similar schemes in the UK and elsewhere internationally, they appear to be on the high side. We know they are higher than in the UK. The main feedback we are getting is around the step effect. To go from 0% to 6% in employer contributions and employee contributions within a decade or so is a significant increase in labour costs. The wider concern - and my colleague, Ms McFadden, has been tracking many of these issues - is around what is also adding further to employer labour costs. There is statutory sick pay, additional leave entitlements and a whole range of factors that are layering costs on employers but they are not coming about in a co-ordinated way. If we cannot give certainty to employers regarding the required auto-enrolment contributions and potential labour cost impacts that are coming from other Government policies, that will lead to uncertainty and will impact on competitiveness. My colleague, Ms McFadden, may wish to comment on those issues further.

Ms Aoife McFadden:

The recent increase in employment legislation means that employers are now under a constant administrative burden. To give an example, in the last two months alone, employers have seen the commencement of statutory sick leave, amendments to the Protected Disclosure Acts, obligations on organisations to report on the gender pay gap and regulations around transparent particular working conditions. They are also waiting for the work-life balance Bill, which is currently before the Seanad and will increase employment rights in a number of areas. In order to be implemented correctly, employers require extensive resources to review and create new policies, for example, conducting risk assessments, and amend contracts and internal procedures, in addition to the need for training and an increase in the required resources. The proposed auto-enrolment legislation, when it commences, will have less of an impact on sectors, employers and employees who are well covered in terms of pension provision, but it will represent a significant challenge for sectors and employees who, until now, have had a low participation rate. While some of these workplaces are part of larger firms, small, independent businesses are likely to have less administrative capacity.

This is something we would like to bring to the attention of the committee. It is also included in our submission.

Mr. Fergal O'Brien:

The point Ms McFadden has made on the concentration of sectoral impact is very significant. We are not going to be talking predominantly about very large employers such as multinational employers in the high-tech or life sciences sectors. We are going to be talking predominantly about SMEs, companies in the experience economy and small firms in manufacturing. These, and particularly those in the hospitality and experience economy, are the businesses that are really struggling as a result of the cost of employment and doing business right now. I will move to our main ask of the committee. Employers are very much positively disposed to making employer contributions but we need to give them policy certainty on the long-term labour costs landscape. That has not been forthcoming from Government over the last five years.

Photo of Eugene MurphyEugene Murphy (Fianna Fail)
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I am sorry. I did not mean to be late but the traffic was really bad today. It took me two hours to get from Maynooth to the Oireachtas but that is a different issue. IBEC's opinion on this Bill is obviously very valued. It deals with businesses. Ms McFadden mentioned new legislation. I was listening to a new directive regarding business being discussed on the radio this morning. That is another one we will have to talk about another day. The witnesses are experts on this. Can they see this auto-enrolment scheme coming on stream in 2024? Is it possible? Personally, I do not believe it is. In the witnesses' view, can it be rolled out by 2024?

Mr. Fergal O'Brien:

I thank the Senator. We have a number of points to make with regard to the timelines. First, from an employer perspective, I will go back to my point about labour costs certainty. We are working with businesses that will probably be doing their budgets for 2024 in the next three to four months. They are going to be trying to figure out what their businesses can afford with regard to increases in labour costs and hiring decisions. That is what it comes down to. It comes down to what the labour costs bill is going to be. If they are not given certainty in good time as to when something like this is going to be introduced, they will have to make knee-jerk responsive decisions in their businesses further down the road, which could potentially impact on employment. In our view, businesses should have a two-year lead-in period from the Bill being passed and signed to allow them to be ready. That is our main ask of the committee.

While we do not present ourselves as the experts on this issue, from other engagements with the State, we do observe that there will be particular challenges with regard to the proposal for a central processing authority, CPA. It seems to us that this will be a very complex organisation involving technology and an administrative system that will need to be established. Everything we know of public policy and the establishment of similar agencies in the past suggests that this will take some time, that it will be complicated and that there will be teething problems. We have always identified that we have a really high functioning arm of the State that already engages with every employer in the State every day or every week, Revenue. We fail to see why Revenue is not the optimal arm of the State to collect these contributions. Employees and employers have trusted and established relationships with Revenue and the payroll and Revenue technology are in place. To us, collection could have been the simplest and most straightforward element. We would then obviously need to look at the other elements, including regulation, administration and investment.

To reiterate my two points, we request that the committee support us in ensuring that employers have a two-year lead-in from the completion of the legislation so that they have certainty in planning for their businesses and we have some concerns with regard to the complexity of the CPA in particular.

Photo of Eugene MurphyEugene Murphy (Fianna Fail)
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Mr. O'Brien is saying that, to be realistic, this should be introduced in 2025 at the earliest and possibly 2026 so that businesses could have that lead-in time.

Mr. Fergal O'Brien:

That is what we are requesting the committee's support for and what our members have told us they need. If dates are uncertain and there are short notice periods, we may get a negative employment response from employers, who would then be dealing with unexpected auto-enrolment contribution requirements. If we asked our members today whether they are budgeting for such contributions in 2024, they would tell us they are not because they do not have a commencement date.

Photo of Marc Ó CathasaighMarc Ó Cathasaigh (Waterford, Green Party)
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I will pose a few questions of my own. I thank IBEC for the opening presentation and the more in-depth submission, which I found very readable and comprehensible. The format used was very helpful to me.

I will touch on that last point regarding increasing labour market costs first. I have a degree of sympathy as there have been a lot of changes with regard to labour market costs. The new bank holiday this year is one IBEC did not list. I have a certain sympathy although, in my opinion, all of those interventions were merited and worthwhile. I know the witnesses are speaking about smaller employers who do not necessarily have an office of ten people dedicated to this type of paperwork and I take the point that this will involve a lot of heavy lifting for them. Phasing the contributions in over a period of time and going from 1.5% to 3%, 4.5% and then 6% over the course of a decade does give the necessary lead-in time and breathing space for all of us to assess the impact it is having on employers with regard to their labour market costs. That is built in but I hear the request for employers to be given enough line of sight. We have heard that from a number of sources.

I will touch on that threshold of €80,000. It is interesting and this touches on what Deputy Ó Cuív was talking about. The top-up effectively amounts to tax relief of 25%. The witnesses have said that using a top-up rather than tax relief complicates or confuses matters. The committee has heard evidence that people understand the top-up better and that we are more likely to get buy-in in this way. The saving scheme that was there a couple of decades ago is a real case in point in that regard. People really understood the top-up. I believe they understand it a lot better than they understand tax relief.

On the point that the threshold of €80,000 is too high, do we have an idea of the expected penetration of auto-enrolment? When a couple earns above €49,000, they will pay tax at the 40% rate. If paying tax at that rate, you are 15% better off if you step out of auto-enrolment and into a contributory model. When it is said that we should lower that threshold, I wonder how many people we would actually be taking out of the net because I believe people will migrate fairly quickly once they are earning above a certain level of income. They will migrate to an occupational pension or something similar that will offer them better terms and conditions. Will the witnesses comment on that?

There has been a lot of repetition in different submissions. The point about Revenue is interesting. In a couple of the submissions, we have seen that question of whether we should have a CPA or whether it would be better for Revenue to step in. This committee would do well to investigate the implications of that in more detail. Something I have not seen in any of the other submissions is the communication and information piece outlined in the longer IBEC submission. It says that, given that employers and trade unions have a specific interest in auto-enrolment, it is important that they have an explicit role in the system. It suggests that the Labour Employer Economic Forum, LEEF, is the appropriate forum for that. I want to give the witnesses a chance to expand on that because I have not seen it suggested elsewhere.

Mr. Fergal O'Brien:

There were two specific questions. Ms McFadden may want to come back in on some of the labour cost issues we have touched on to add a bit more colour. On the salary range, our main focus is on trying to eliminate unnecessary administrative burden, where possible.

I believe the Vice Chairman is right in that once we go above a certain threshold in terms of tax treatment, it will be more beneficial for employees to go the more traditional occupational route. It is really important that where we have those schemes, we are not doing anything that undermines them. We also note that our coverage challenge is predominantly in the lower- and middle-income brackets. For us, it is about limiting the administrative burden. It is a question of meeting our objective of growing coverage rates while getting the balance right by not imposing excessive administrative costs on employers in managing opting in, opting out and re-enrolment.

There are two other issues we would like to discuss in this regard. Ms McFadden may revert to the first of these, which is about the initial enrolment from day one of employment. This is significantly different from existing occupational schemes and does not fit with probationary practices in the workplace. That is something we would appreciate the opportunity to comment on. Ms McFadden might do so.

The second factor is obviously re-enrolment after two years rather than three. Again, this is all about trying to minimise the administrative burden while not damaging the policy on growing coverage. That is very much our view on the income threshold. We do not believe we will lose much coverage by having a threshold of €50,000 rather than €80,000.

On engagement, under the workings of the Labour Employer Economic Form, LEAF, we have had, probably in pre-Covid times, a subgroup on pensions. The key actors – the employers and the trade unions, working collaboratively with the Department of Social Protection and the Government on the issue – were engaging. We found that to be a very positive experience. That structure has now been re-established, just in very recent months. The group is actually having its first meeting in this iteration next week. We see that very much as a positive. It is about having a constructive two-way dialogue. We are significantly interested parties. We and the trade unions want to make this work but in a way that balances what will be additional costs and an administrative burden against our objective of improving coverage. That engagement and communication would allow us to engage with our members and bring them on this journey towards improving pensions coverage. This is incredibly important. Ultimately, it is an issue for employers and employees. The employers are the ones who will have to pay for and administer this along with the State. They are the key players, so we would very strongly support the further development of the LEAF model.

Photo of Marc Ó CathasaighMarc Ó Cathasaigh (Waterford, Green Party)
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I see the merit in it but wonder whether primary legislation is the place to address it. I do not know whether Mr. O'Brien has a view on that. It seems it may be a structure that could be put in place by means of regulation. Primary legislation has to stand a 20- or 30-year test. I do not know about naming a particular institution in that context.

Mr. Fergal O'Brien:

Maybe it is a principle of social dialogue rather than a matter of a specific iteration or current-day structure.

Maybe my colleague, Ms McFadden, will want to comment on the waiting period and how that aligns with existing occupational schemes and probationary periods.

Ms Aoife McFadden:

IBEC does not agree with the fact that there is no waiting period. The general scheme's rationale, precluding the use by employers of probationary periods or short temporary contracts as a means of avoiding auto-enrolment obligations, is not something we agree with. Many occupational pension schemes include waiting times, which are aligned with the probationary period specified in the contracts. The proposal set out in the general scheme is inconsistent with this practice. For example, section 121 of the Pensions Act requires an employer who is not operating a scheme or operating a scheme that imposes as a waiting period for membership of it a period that is longer than six months must provide mandatory access to a PRSA. This is aligning. We feel the general scheme is not aligning with the current practices. We have a substantial level of private-sector provision that should be preserved and not destabilised by the reforms proposed within the general scheme. If adopted, head 5, under which the waiting period is addressed, or no waiting period is addressed, could create an anomaly whereby a new employee would be required to enrol in the auto-enrolment system and then switch to an occupational pension scheme. We suggest that this uncertainty be addressed. Drafting certainty and policy certainty are so important for employers, as we have outlined. We ask that this be examined as well.

Photo of Marc Ó CathasaighMarc Ó Cathasaigh (Waterford, Green Party)
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I understand that point and the tensions that exist; however, in general, somebody going to end up in an occupational pension is probably in longer-term employment, whereas much of what we are trying to do in creating an auto-enrolment model is aimed at people who may be in more transitory employment. I have not drafted the Bill but believe that if you allow the six-month opt-out period, a 50% hole will be cut in the pension provision of those who move employment every 12 months. I realise people do not necessarily move every 12 months. I get the central point on making six months of auto-enrolment contributions before entering an occupational pension scheme. The additional layer may involve a complication but I worry that if we implement a waiting period, those towards whom the auto-enrolment provision is probably geared could end up with a substantial hole in provision over time.

This relates to another point on which I would like to give the witnesses a chance to expand. The point has come through in various contributions. I am referring to businesses' flexibility in providing for top-ups or additional voluntary contributions. Might a lack of flexibility have a gender implication? This was mentioned briefly. I would like to give the delegates a chance to comment on that also.

Mr. Fergal O'Brien:

Let me refer briefly to the initial waiting period. As Ms McFadden said, putting a new employee who will be progressing to an occupational scheme after a probationary period into an auto-enrolment arrangement for six months, which may entail the only six months of contributions of their career, seems entirely illogical to us. We just cannot see the sense of it and believe it will be counterproductive. It would just create a negative approach to and negative sentiment regarding auto-enrolment within places of employment and among our members. We definitely believe this should be considered.

The other issue we would raise is that people who may be in very transitory employment, such as students and those in short-term work, will not establish a savings pattern until they settle in their careers. We believe, based on data we have seen on churn rates in employment, that contributions should start from the age of 23, just to try to minimise the impact.

On the question on additional voluntary contributions and the gender challenge it will bring, we know pensions coverage and pensions adequacy among females are significantly substandard by comparison with those among males in the working population. We hope auto-enrolment will help to address that. Definitely from a coverage perspective, it will, but the lack of flexibility on additional contributions will not help in terms of pension adequacy where people may have had several years out of employment and are trying to play catch-up. We realise there is a commitment to examine this on another date but stress the urgency of addressing gender inequality in pensions adequacy, notwithstanding that auto-enrolment will be a significant support in terms of pensions coverage from a gender perspective.

Photo of Marc Ó CathasaighMarc Ó Cathasaigh (Waterford, Green Party)
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A couple of submissions have suggested using Revenue rather than creating a central processing authority, CPA. This is not an area I understand particularly well, never having been an employer at the scale in question. Mr. O'Brien says employers are used to dealing with the Revenue Commissioners. I want to give him a chance to expand on that and why he believes a CPA model might be overly cumbersome or overly costly to put in place.

Mr. Fergal O'Brien:

Again, from our understanding of the roles and functions of the CPA, which are quite broad in the draft Bill based on what we would have seen in the original straw man of the policy proposal, we believe it will bring additional complexity in terms of establishment.

We are talking about significant technological and administrative investment. We have no idea what the scale of investment will be but it will be very substantial. We can only go on the costs that were incurred in the UK in terms of a similar structure and the number of years it will take for those costs to be ultimately refunded from people making contributions to their pensions and the taxpayer. We would like to see these costs as efficient and curtailed as possible. If we can use some of the existing infrastructure of the State through Revenue in terms of the payroll and employer engagement that is already established then we fail to see why we would not do that. Obviously it would have resource implications for Revenue and we accept this but we would have to expect to get substantial economies of scale through Revenue collecting this, in the same way as it collects social insurance contributions on behalf of the Department of Social Protection. It is not as if Revenue does not already collect non-tax revenue contributions for other arms of the State. It is already happening in terms of PRSI and social insurance contributions. For us it would mean a more slimmed down CPA that would easier to establish and should have a quicker timeline, be administratively less complex and be cheaper for the State.

Photo of Marc Ó CathasaighMarc Ó Cathasaigh (Waterford, Green Party)
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If there is a good counterargument I have not heard it yet. It is something that we will have to look into.

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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I absolutely agree on the pension levy. If there are long-term schemes and people are making investment decisions or life decisions based on a policy, then changing it willy-nilly without warning would be bad. The pension levy is an example. Changing the rules on the State pension with regard to people without full contributions and reducing the rates was another. People had made decisions on making or not making voluntary contributions on the basis of the system that was there. Suddenly they found it changed. I agree this totally undermines confidence. There was one case with regard to the PRSI system of pension and another case with regard to private pensions. The point is well made.

I accept there is an extra administrative burden in some of the new legislation. Some is only for big companies. For example, there is a size restriction with regard to the gender pay gap. Measures with a reporting requirement take more work and are more complex. I used to have ultimate responsibility for payroll, and I set up a payroll system in the little business I worked in, when we had to do everything manually with a calculator. I am a little bit surprised, given modern computerisation, that IBEC feels there would be a significant administrative burden. It all depends on the software package but normally once the systems are set up they make the calculations themselves and there is not too much of a burden. Nowadays we can make all sorts of electronic transfers. In recent years I had the experience of employing somebody for a month and having to set up as an employer in a micro micro-business, as normally staff are paid directly by the Oireachtas and we have no responsibility. I found that dealing with Revenue now is very easy because the money is taken at the end of the month and the computer does the calculation. I see that other elements of change have an administrative burden but I wonder why IBEC thinks this would have a big administrative burden.

Mr. Fergal O'Brien:

I thank Deputy Ó Cuív. Our main feedback comes from our members. We also spent considerable time engaging with our counterparts in the UK on the introduction of a similar system there. I will be honest. When we came to this debate we had assumed the main concern of our members and of business generally would be about the contribution rates. The feedback from our UK counterpart is that by far the biggest issue it dealt with was the administrative complexity. When it comes to the reality of the practice and implementation of these things on a daily basis they rarely are as straightforward as they are initially envisaged. We see this in many other schemes and legislation. Technology absolutely helps but there is no question that significant labour input would still be required to make the schemes work.

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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Is this because we make it unnecessarily complex and put all sorts of little things in them, as opposed to the system fundamentally charging a certain percent and fixed percentages being plumbed into the computer to get the answers? I agree with Mr. O'Brien. I look at the number of PRSI rates and I believe the whole thing should be rationalised down. There are myriad complications. If people had to do it manually, it would be absolutely mind-boggling. At least computers tend to do it nowadays for people. It is unnecessarily complicated as a system. There are too many rates of PRSI and there is no question about it. There are also too many classes of PRSI. Effectively all workers earning over a certain ceiling should pay a particular rate and get paid back by the State accordingly. Perhaps the witnesses can give us more detail on why those in Britain are saying that it is administratively complicated. Could we have a better system than they have and one with fewer crinkles in it?

Ms Aoife McFadden:

The calculation of the contribution may be something that will be managed by software but additional training will be required on it. There will be a need to understand the legislation. There will also be a need for policy development so that employers communicate correctly to employees on their entitlements. Outside of the software calculation and remittance of the contribution to Revenue, in the background there will be a number of resources and drains on employers with regard to training and information development in the organisation to ensure employees know their entitlements. This is why the certainty and clarity in the legislation is also very important so that unnecessary resources are not committed to it.

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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Politicians at the coalface deal with people who come in with payslips that they cannot make head nor tail of. We do not get a huge amount of training but normally we figure it out. Some of the systems are unnecessarily complicated. This is the problem. In other words, it is not that we cannot have a more simple or coherent system it is that we seem to love and enjoy creating all sorts of anomalies in systems. My experience of dealing with the public is that they would like it to be simpler as they could better get their heads around it if it were more streamlined and simple.

Mr. Fergal O'Brien:

A key part of the simplicity and certainty is reducing the Lanigan's Ball effect. Let us not have so much in and out. We believe there is too much in and out in terms of the scope, start dates and re-enrolment. Let us target the cohort where we are trying to generate the savings behaviour from an early stage among people on low to middle incomes. Let us make it as certain as possible. If we could limit the amount of change between opt in and opt out, review periods and commencement dates it would significantly reduce the administrative costs for employers. We think it would also give more certainty to employees and, ultimately, would create better buy-in for what we are trying to achieve.

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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Could Mr. O'Brien get a short paper from his colleagues in the UK as to where the administrative burden is and what elements of the scheme there create an avoidable administrative burden? Reducing the administrative burden is always better.

Mr. Fergal O'Brien:

I am very happy to do that. The issue of scope kept coming up in that conversation. I am very happy to come back to the committee with further observations on this. I will commit to doing this.

Photo of Marc Ó CathasaighMarc Ó Cathasaigh (Waterford, Green Party)
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As no other member wants to contribute that concludes our public session on the matter. I thank the representatives from IBEC for their constructive and positive engagement with the committee. Go raibh maith agaibh go léir. I now propose that the committee go into private session to consider other business. Is that agreed? Agreed.

The joint committee went into private session at 10.30 a.m. and adjourned at 11.42 a.m. until 9.30 a.m. on Wednesday, 8 February 2023.