Bríd Smith (Dublin South Central, People Before Profit Alliance) | Oireachtas source

This is something I have been talking about on behalf of various workers since I came in in 2016 and as workers' spokesperson for People Before Profit. There has been a real war on pensions, particularly defined benefit pensions, over the past ten years or so. The narrative is that we are living too long, and we cannot afford this, so we have to tackle it. Therefore, instead of longevity in life being something to celebrate and be excited about, and instead of making provisions for people to have longer mortality and be healthier as they go beyond their working age, we are seeing this everywhere right across the world as a burden. I want to argue that this is completely the wrong way to look at ageing and pensions and how we fund our ageing populations. Obviously, our ageing populations are funded in the first place by the work people have done all their lives. After all, the contributions they make to PRSI or, indeed, private pension schemes are deferred wages. That is what it amounts to. The wages they would have been taking home are deferred because they are put away for them for when they are due to retire. What the private pension companies have been doing is really going to war on the defined benefit schemes by taking them down and decimating them in most of the private companies and even some of the semi-State companies. However, I know from watching and being engaged with this that governments are also very concerned about the longevity of the working population and have attempted to bring in longer periods of a person's working life. Therefore, we went from 65 to 66. There was an attempt to go from 67 and then to 68. The Government got a bloody nose on that one and people had to sit down and think about how we are going to deal with the ageing population and the future of the pension scheme. Most important, although this has in theory the veneer of a progressive move, it is ultimately about trying to subsidise the State pension. It may not appear like that in the immediate term, but the bit-by-bit chipping away could, should and probably will mean from the perspective of Government that it will not be paying out the money it is paying out now on the State pension. That is a concern. That is a big concern for workers, people who try to represent them and all of the population as people's age increases.

There are currently 500,000 people receiving the State pension and for many of them, it is their only source of income. The State pension for many is all they have, with no additional family help or social supports. They struggle to afford the basics of food and housing, in particular, if they do not own their own house.

Deputy Bríd Smith:

Everyone here can testify to the increasing number of people in their 50s and 60s - I find they are mostly women - being made homeless after renting in private accommodation all their lives. With many landlords selling up, these people cannot afford, and certainly will not be able to afford in their retirement years, the exorbitant and brutal rents being charged right across the country, in every city and town. According to Central Statistics Office, CSO, figures, one in five people over the age of 65 is at risk of poverty. At 20%, that is a lot of people. One in three people living alone is at risk of poverty, according to the CSO. People living alone have less money to play around with. ALONE and Threshold recently found that people aged over 65 who are still renting in the private sector spend more than 35% of their income on rent, with one in four living in poor-quality accommodation that is unsuitable for their needs.

We need serious reform of the current State pension. For a lot of people, it is inadequate to enable them to live a decent life. It is absolutely unacceptable, in one of the richest countries in the world, while running budget surpluses and providing all sorts of giveaways to multinational corporations, that we fail or neglect to look after our elderly population. As far as we can interpret the Bill before us today, it is a patchwork solution for a broken State pension. The Government appears to be offering a distraction by mainstreaming private pension funds instead of providing adequate State pensions. The automatic retirement saving system seems to make it easier for people to save for retirement. However, it facilitates investment in private pension funds that come with additional risks to pension funds and with administrative fees. It may be very costly for people and for the State. By introducing the Bill, the Government is taking initial steps towards removing the State pension from circulation into the future. The Bill will see approximately 800,000 people automatically enrolled into the new retirement saving schemes. The plan is to begin with the introduction of new schemes from January 2025. However, given the extensive administrative and implementation requirements, it is hard to believe the schemes will be up and running in the ten months remaining for their establishment. Will the Minister update us on the progress of all the structures and administrative arrangements that will have to be wrapped around the schemes?

Initially, employees will contribute 1.5% of their gross earnings to the savings pot, which will be matched by the employer and topped up by the State. The rates and contributions will gradually rise until, from 2034 onwards, 6% of gross earnings will be paid by the employer, another 6% will be paid by the employee and 2% will come from the State. According to the Economic and Social Research Institute, ESRI, there will be a slight increase in the rates of people at risk of poverty as a result of automatic enrolment pension contributions because those contributions will mainly come from low-income families already struggling to make ends meet. We run the risk that people who already do not have enough money to buy the necessities in life will be forced to decide either to opt out of the pension scheme or cut back on expenditure on essentials like food, clothes, etc. for their families. Without appropriate safeguards to protect low-income workers and their pensions, we could see people opting out of the scheme in order to pay for bills they could not otherwise afford.

In effect, the scheme may only work for those on higher incomes. The requirements disproportionately penalise younger workers and women. The reason for the exclusion is unclear given that younger workers and women are the lower earners. Many younger workers will not be aware of the benefits. As we all recall, when we are young, we never think of a pension because it just does not occur to us. It is good that young people are being encouraged to pay into a pension but they will be excluded from the scheme on the basis that they are earning so little. That will not encourage them to believe this is the way to go.

I question the reasons for setting the minimum income at €20,000. According to the CSO, this will affect one in five people. The requirement limits access to the pension scheme by low-income and vulnerable households and individuals, part-time workers and women predominantly taking care of their loved ones at home. The income threshold may offer incentives to employers to keep wages low in order that they do not have to fulfil their obligation to contribute to the employee pension fund. There is a serious case to be made that the restrictions on enrolling in a pension scheme based on age and income need to be reviewed if we are to help the most vulnerable to save for the future.

The Bill sets out an investment strategy according to individuals' risk rating. A greater risk may lead to a greater pension fund return but, equally, it leads to a greater risk of losing money. It might sound a bit harsh but we need to be careful not to gamble on the Stock Exchange with people's futures. Gambling is a real problem in this country. The Government needs to be challenged on what it is doing with the Gambling Regulation Bill. What is being proposed in this Bill is like gambling but on the Stock Exchange. Where a greater risk is involved, it may lead to an endangering of the pension funds of poorer people and those most excluded from society.

Many people have low financial literacy. We should not expect people to make lifelong decisions and take risks with their pensions based on their feelings, information they might be given or what they are being told on the Internet. It is crucial that people are offered appropriate financial advice in an efficient manner. This is something for which the Pensions Authority probably should be responsible.

Regarding the pensions investments themselves, it is important to note that because most people are not actively engaged with pension plans, they do not know how to protect their investments in a safe and secure way. Of course, most people want a decent pension that at least maintains the standard of living they have when they are working. They do not want to face a future of poverty. Most people do not want investment managers to start playing around on the Stock Exchange with their hard-earned wages, that is, the deferred wages to which I referred. The risk is huge for all of us.

It is also unclear which types of financial assets will be considered for investment. The Bill refers to good practice when investing funds. It needs to set out specific environmental, climate and social governance requirements in this regard. I understand there was a recommendation at committee that the funds not be invested in fossil fuels or the arms trade. That needs to be spelled out in the Bill rather than just being a recommendation to which we would morally like to adhere. What happened to that recommendation and will it be inserted in the Bill?

On investment arrangements, the Bill does not specify what portion of pension funds will be invested in foreign or national assets. This is an important point. How much of a pension fund will be invested abroad instead of the money remaining in Ireland? Even in terms of how the capitalist system works, would it not be much more wise to invest in funds and businesses that are based in the country in which people are living and working and from which they are trying to extract their pension? We need specific considerations of that issue.

We also need to look at the fees that are being associated with private pension on behalf of those who are automatically enrolled. Those fees can be very substantial and they should not be paid for by individuals. I can think of one recent example, in RTÉ, where the fees for administration of a pension scheme are being passed on to the retired workers. It is a very recent move, and one that could easily be copied, that administration fees are being paid for out of the money in the pension fund.

Regarding taxation, it appears automatic enrolment contributions will not be eligible for tax relief, as is the case with conventional exemptions on pension contributions. Will the Minister clarify that? As I understand it, automatic enrolment contributions will be subtracted after take-home pay is estimated and all other taxes are paid. If that is correct, it means we will not have a practice that incentivises people. Other pensioners are being given the right to have their deductions made before tax and to benefit from tax relief. In the case of automatic enrolment, however, it seems it will be calculated on gross pay and taken out after the net amount is paid. Why is that happening? If it is happening, can it be changed?

Our primary concern is that the State pension is at risk and that it is unacceptable in times of great economic performance and high inflation that we are giving retired workers only €13,000, on average, per year to live on. The State pension should be enough for retired workers to live on and be equal to what the Government defines as a living wage, which today is 60% of median earnings. That would give a pensioner €25,000 per year instead of €13,000. Instead of fixing our public pension system, we are being offered a private pension scheme, which will be costly to everyone, especially the most vulnerable.

I want to finish by talking about retired workers themselves because-----

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