Duncan Smith (Dublin Fingal, Labour) | Oireachtas source

Auto-enrolment is an issue that has long been talked about. We are glad that we now have a Bill before us. We have reservations about some aspects of the more detailed elements but broadly speaking are supportive of its provisions. The impetus behind auto-enrolment is to address the pension coverage gap and to take steps towards improving the financial security of people in retirement. This aim is to be welcomed. The 2022 census data shows that about 20% of those beyond retirement age live in relative income poverty. That is around 145,000 pensioners who represent just over a fifth of the total population living in poverty, second by age cohort only to children. Auto-enrolment could prove a significant step in addressing that level of poverty in retirement if it is done correctly.

Those workers who do not have an occupational pension scheme and who cannot afford private pensions, face an obvious income cliff edge when they retire. Reliance on the State pension as a sole source of income will result in a huge drop in both income and general living standards for many in retirement. At present Ireland is the only OECD country not to have some form of mandatory pay-related retirement savings mechanism. Ours is the only country that outside the State pension relies on a more or less voluntary approach to pension savings.

It is not unreasonable to conclude that this approach has failed. We would not be here talking about this nor would we have been talking about it for the past number of years if we had not reached that conclusion already. We have never really reached widespread pension coverage under the voluntary system. Approximately two thirds of workers are covered outside of the State pension, be it through an occupational scheme or a private scheme. There means one third of workers are not and who will be relying solely on the State pension. That is far too many to be left behind. We are talking about equity here as much as we are talking about anything else. Workers should not have to get lucky with that their employer offered an occupational scheme nor should the other option of a private pension be the preserve of those only on good incomes. It is notable according to Central Statistics CSO data that more than four in ten workers cited affordability as the main reason they do not have a supplementary pension.

We need to recognise as well that those private or occupational pensions are receiving a benefit from the State through tax incentives that are not being afforded to those without them. This is effectively denying people on low income a State benefit because they do not have the luxury of an occupational pension. It is not that we believe occupational pensions should be a luxury, or the ability to be able to afford a private pension. We can see that those in what we traditionally classify as low-paid jobs are among the lowest for coverage. For example, in the hospitality and accommodation sector, only 32% of workers have some form of supplementary pension whereas those classified as professionals have a coverage rate of 83%. It is obvious that those tax incentives have failed to attract a sufficient number of low and middle income earners to these types of schemes. I am glad that we are introducing a form of mandatory retirement savings.

It is clear, not just that we need to increase coverage generally, particularly for those in low-paid jobs, but that the voluntary system itself has failed. In fact, it discriminates against those in such roles and it is crucial when this new system is operational that workers on the auto-enrolment scheme are treated equally in tax benefits. It is our hope and our belief in the Labour Party that the system of auto-enrolment will improve coverage, particularly for those on those low incomes and address the income inadequacy in retirement.

The proof will be in the pudding when we look to other countries that have introduced it. Since our next door neighbours brought in auto-enrolment in 2012, pension coverage has increased from 47% to 78% and their pension landscape has changed massively. In the ten years or so since it became operational, it narrowed the enrolment gap across incomes, occupations and age groups. In real terms, total pension savings have increased and many employers go beyond the stipulated minimum contribution rates Similarly, New Zealand's KiwiSaver's scheme has achieved some 80% of coverage. A report from the UK scheme released recently highlights the successes in addressing the pension gap but it also provides some suggestions we would do well to learn from here before we begin our scheme and I will come back to that.

Before moving on to the particulars of the Bill itself I want to briefly make general points on the State pension and its relationship with the new auto-enrolment scheme.

First, I would welcome from the Minister an assurance that there will be safeguards put in place that will ensure that this new retirement savings scheme will be in addition to the State pension so that at no point can some future government unilaterally decide to make it a replacement. We also need assurances that the Government remains committed to achieving a benchmark of 34% of gross average earnings for the contributory State pension, as set out in the roadmap for pensions reform. I hope this new measure, welcome as it is, is not used as a distraction from that ambition. At present, we are still a significant distance away from that target. The kites have already been flying for what would be this Government's final budget so we might see in the coming weeks and months whetter Government intends to follow through with on that ambition.

Second, I would also appreciate an assurance for workers from the Minister that those contributing to the new scheme will not face a means test for the State pension in the future. Safeguards must be put in place in that respect also.

All that being said, we are broadly supportive of the principles of auto-enrolment and are optimistic about its potential to bridge the pension gap, increase workers' pension coverage and reduce and prevent old-age poverty but we have reservations about some of the details in the Bill. The point was made by the Irish Congress of the Trade Unions, ICTU, that there is a loophole in the Bill that could see employers getting away with not making contributions to employee's pension for a number of years if that employee already has a personal retirement savings account, PRSA. The seven-year period before an employer has to make contributions needs to be significantly shortened. It is effectively punishing employees who try to be proactive and set up a PRSA for retirement for savings.

Similarly, we join with ICTU in calling for stringent protections against employers using the new scheme to dilute the existing pension arrangements that workers might have through occupational schemes. We cannot have a situation where existing employer contribution rates are decreased in cases where the auto-enrolment rates are lower. Protections must also put in place to prevent employers from closing off occupational schemes and their contribution to new hires.

We also have concerns around the rules for self-employed people. Bogus self-employment is rife in Ireland and I am concerned that this mechanism will be used by employers to exacerbate the issue. I am sure many of us have met workers from RTÉ in the past year who were placed on bogus self employment contracts and have been left without a pension. We do not want to create a financial incentive for employers to put workers on the same sort of contract to avoid having to make contributions to the auto-enrolment scheme. There is already a low level of coverage among self-employed workers so the Labour Party is of the position that they should be automatically enrolled and that the businesses they are providing services to would be liable for employer contributions.

I fail to see the rationale behind the minimum age threshold for inclusion in the scheme. The minimum age threshold for PRSI payments is 16. Young workers are some of the most exploited in the country and it seems deeply unfair to me that they would be excluded. At seven years, from when a young worker begins working and when they are included, is not an insignificant amount of time that somebody could save for a more financially secure retirement. The age threshold for inclusion in the scheme should be aligned with that for PRSI payments.

On the operational element of the scheme, particularly with respect to the pension investment fund provided, it needs to be careful to ensure that people can have confidence in the scheme. The Bill establishes a new body to administer the system, the national automatic enrolment retirement savings authority, and that this new body will put out a tender for providers. We would welcome from the Minister details on what the parameters for consideration to be awarded a contract would be. We do, however, welcome that the board of the new body will include worker representation.

It is important to remember, however, and it is not unfair to say, that people in Ireland are generally suspicious of financial institutions given our own recent history. Members of defined contribution pension schemes were completely shafted during the financial crash. People need to be assured that their pensions are secure and that they are being properly managed. The national automatic enrolment retirement savings authority is a positive provision in that regard but will need strong legislative underpinnings to ensure people can have those assurances and the confidence that their funds are protected from mismanagement. A good start to get people to buy into the system and to give that bit of confidence a boost would be to lower the annual management fee. The current 0.5% fee seems excessive to me and will be perceived as such. Trust between the public and financial institutions has been damaged and if this scheme is to be successful, people cannot feel that they are being fleeced by pension providers and investment funds from the get-go.

There are other elements that we have a particular view on but we make back to them on Committee Stage. We will reserve the right to make amendments on that and other issues I have raised today in due course. In general, however, we are supportive of this Bill. We can see the benefits when look to other countries such as New Zealand or Australia that have introduced similar schemes. They have seen a transformative impact in pension coverage on the back of auto-enrolment and we hope we can achieve the same result here. We have to get this right. It has been a long time coming and I want to see it work. We will work collaboratively with the Minister, the Government and other Opposition parties in that regard.

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