Catherine Connolly (Galway West, Independent) | Oireachtas source

I welcome the opportunity to speak on this Bill and like with the sovereign fund, I have done my best to understand it. It is difficult not coming from a financial background. There are 141 sections and nine Parts or 79 Parts; I have forgotten. I have tried my best.

Let us look at what the Minister is telling us. She is telling us that there are twin goals and I acknowledge the work that the Department has put in. The twin goals of this automatic enrolment system is where people do not have a choice in the first six months. Let us get that out in the open. There is no choice and they will be automatically enrolled. The twin goals are to create the same sense of imperative around savings for retirement and to help those on lower to middle incomes to accumulate retirement funds. I recognise in the citizens' assembly that 87% of its members agreed that there should be some form of mandatory pension scheme. Then, of course, from a market consumer demand perspective, the ESRI research indicates that over the longer term, this automatic enrolment will be good for the economy as retired people will spend more.

We are now designating people as consumers and very little else.

We are talking about a State-sponsored scheme. The word "sponsored" is important. Deputy O'Dea made important points. I think there is a fundamental misunderstanding but, again, I am no expert. We are talking about a State-sponsored supplementary retirement savings scheme into which employees will be automatically enrolled. The Minister might correct me if I am wrong. This is not a State scheme or a State fund, and therein lies the nub of what we are talking about when we talk about where that money should be invested and whether it should be ensured that it is not invested in the arms industry or the fossil fuel industry. From what I have read in the documents - and I thank the Library and the Minister's Department for the clarity of what they have produced - the essence of this is that it is not a national fund, not like the sovereign fund and not a Government fund. Therefore, we are sort of selling it as if it is but yet we are saying we do not really have much control over the fund when it comes to investment in arms industries or fossil fuel industries. We are putting in place some protections that will oblige the investors to take into account environmental, social and governance issues, but they will be obliged only to give due consideration to those issues. I have a huge difficulty with that. I understand that the committee made strong recommendations that there would be no investment in the arms industry or the fossil fuel industry and that it would be ensured that the bulk, or certainly a substantial amount, would be invested in Ireland. The answer coming back from all the documents I have read is that we cannot really influence that in any way because this is not a national fund and not a Government scheme, so we want it every way. That is what I read.

I emphasise throughout all this that I am no expert. If I have taken the trouble to read this and I am having difficulties, the Minister can imagine a busy mother or father trying to decide between investment funds and what they will do with the money they have saved over a long period. It is a State-sponsored supplementary scheme.

The automatic enrolment will be operated on the basis of a prefunded defined contribution model, we are told, with members holding individual retirement savings accounts, and the individual will have freedom to choose a savings fund. There is not much freedom here when I come around in a circle. The individual can opt out, which is good at different points, and there are different windows of opportunity to opt out or to suspend. The whole purpose of this is to deliver a pension fund that individuals can draw down on maturity. At that point, however, they will have to make decisions to reinvest it in various products - with a limited number of investors, I might add, because that is what will happen. The central processing authority will tender to a limited number of people, and the confused father, mother, man or woman will have to make a decision as to which funds.

We are told that we are an outlier and that all other countries have done this. Some have, yes, such as New Zealand, England and so on. New Zealand, however, is particularly different because it matches the funding with 50% funding and allows people to draw down their investments completely if they want to buy a house, for example, which is not allowed here. New Zealand is therefore particularly different and worth looking at. Then we look at England, but we are not told about the opt-out rates. It would be great if we had the opt-out rates somewhere. I come to a different structural basis for auto-enrolment from an expert who wrote to the Department and to the Pensions Council. I thank the Minister for ensuring that a report was carried out. One of the criticisms of the expert's suggestion is that we need maximum participation at all times, and that applies to this scheme as well. We need maximum participation for the scheme to work, to have maximum funds in it. I want to know the opt-out rates on these other schemes.

Then there is the digital part, and it is digital by design, which is welcome in the modern world we live in, but there must always be provision for those who are not digital. I read in different places that that has been accounted for but, again, perhaps the Minister could confirm that when summing up.

The essential feature is that this will be phased in, so employees and employers will pay 1.5% in the initial compulsory period and then, over ten years, that will rise to 6%. The employer and the employee will pay the exact same contribution, with the Government then paying slightly less. By the time we come up to the 14% after ten years, every single employee who remains in the system will pay 6%. The total is 14%: 6% for the employer, 6% for the employee and 2% from the State.

On the businesses alone paying that up to a maximum of €80,000, I took the trouble to look at what the restaurateurs have produced. They tell us about the trouble restaurants are in, which is colossal. It is very serious. I refer to the Restaurants Association of Ireland. Jim Power, whom I do not normally cite in the Dáil, sets out in black and white the difficulties small businesses are experiencing. On top of that, there will be an obligation now to match the employee's contribution, albeit over a ten-year period. A person - a man or a woman - on a salary of €35,000 a year will pay €40 weekly. Again, if I am wrong, the Minister can correct me. They are assessed on their gross salary, in this case €35,000, with the person paying €40 a week. To me, that is colossal. When I look at all of this, I am told that pensions coverage in this country is particularly bad, as low as 35% in the private sphere. The research tells us that some people do not get around to it and that, more importantly, 40% cannot afford it. They simply cannot afford to pay into a pension scheme. I have serious difficulty with that.

Then there is no tax relief and, again, I have read carefully the reasoning why. The funding is being matched, and some people on the lower money would not benefit from the tax relief in any event. We are keeping the distinction between those who have a lot of money and can afford to invest and get a huge tax relief and the lower income groups. On a structural basis, we will set up a central processing authority and it will be responsible for the operation, co-ordination, supervision and development of the system. In a 30-year period, that processing authority will cost us €250 million. I take all these figures from the regulatory impact assessment. There will be 60 people employed. It will be set up on an administrative basis first, before the legislation comes in. We are told that this is all necessary because then it will be in a position to implement economies of scale. It will collect the contributions, tender out for investment managers and invest the money.

I could not possibly comment on the investment part of this but I do know that we will have learnt nothing if we continue down the road of investing and investing in the manner that has led to the crash in the first place without learning from the Covid-19 pandemic or from a climate emergency where transformative action is needed. I will leave aside my doubts about taking this much money from an individual when he or she cannot afford it and investing it with no guarantees as to what the returns will be. I have read all the literature. I was told about a fund of €250 million or so but I have no idea what the person will get back after saving that money over his or her lifetime. The Minister has reassured us in her speech and in this documentation that there are three pillars and that pillar 1, the State pension in both its forms, remains the bedrock. I have great concern, however, that that is not what will happen and that once people are paying into this, it will be used to reduce the State pension. I have serious concerns about that. The Minister and I might be active in another life somewhere by then, but we will be well gone out of here.

I am concerned about that.

On the regulatory impact assessment, a number of things jump out at me. It agrees in a sense - I am paraphrasing - that it will be difficult for people to make that type of contribution, given the low salary of €35,000 and the €40 weekly payment. However, in the long term, we are told it will be good for them. I am not happy with that reassurance that taking €40 a week from such people will be good for people in the long term. The Minister tells us that the whole purpose of this is to supplement the State pension rather than reduce it. If that is the case, why, when we are putting money into sovereign funds, are we not committed to raising the pension to allow people to live with dignity now, in the present, as opposed to some time in the future, depending on the returns from funds? That does not make sense to me.

The ESRI concluded that some individuals, particularly those on lower incomes, may struggle during the initial mandatory six months' participation in the scheme but long term, their position will improve. It goes on to look at women and the disproportionate effect on them. Men and women have different experiences of employment as regards employment rates. There is the prevalence of part-time work among women and the extent to which men and women differ in caring commitments, meaning women are in and out of the market and do more part-time work. Women will, therefore, be worse off. Women also have differing levels of longevity, which will impact the benefit of auto-enrolment in the long term. Women tend to be more risk-averse than men - it is a good quality - in the allocation of their financial assets and are less likely to choose the higher risk, higher return option. For all of those reasons, women and poorer people will be affected. The vague thing in relation to the environment, social and governance does not cut it with me. It might have cut it with me years ago but not after a declaration of a climate emergency and after Covid, when we need transformative action. Bringing this in with a Government stamp while at the same time saying it is not a national fund and we have no control over it is extremely worrying.

I wish to speak about the man who I do not know but have met. I read all his stuff. He has met some TDs. He wrote to the Pensions Council. His submission deserved not greater respect but greater analysis than what happened. We had to table questions to get the report by Fitzgerald, commissioned by the Department, regarding this man's submission. He was not making the same arguments as I am today but he said there is a safer way to invest this money. After ten years, I understand there will be, I think, €31 million or €21 million in the pot alone. He came forward with a proposal for a better way to invest this that would give double the return with less cost. I am not sure why that was not given more attention. He wrote to us stating the Pensions Council's letter to the Minister in February was extremely unbalanced. It did not mention that the independent expert appointed by the council concluded that workers' pensions under his proposal would be more than double those under the Government's proposal. He asked if that was not relevant. He also pointed out that the letter from the Pensions Council to the Minister did not mention that members' pension accounts would look like high-interest deposit accounts with minimal risk of negative interest rates at the time. He went on to point out the volatility the UK's NEST scheme is experiencing due to the high dropout rate. This man won the prestigious Frank Redington Prize. He is an actuary with many qualifications. He came forward in good grace and I would not insult him by misquoting his figures or attempting to quote him but I can read and understand. While I am not even sure I agree with him, he has come forward with what he says is a better way to safeguard the money, with better returns, and has given reasons for that. The independent report, which I also read, agrees with him that his proposal would give double the returns, among other advantages. Clearly, problems were highlighted regarding post-retirement investment and a buffer account. I have no idea why the Pensions Council did not engage with this man. Let me put that in a fairer manner. It is the person's understanding that the Pensions Council did not engage with him and did not give him a chance to come back, give his reasons and deal with the criticisms.

Here I am looking at this pension scheme. On the face of it, is a very good idea to have savings and to encourage people to save but savings are a completely different category of money from money that goes into a central authority which then tenders to have a small number of investors which will then invest it based on four different categories of risk - moderate, less moderate and so on. How can I or any person on the ground understand that without trust? My trust is gone when I see explanations that this is not a national fund. I would have a lot more trust if this was a Government initiative with a Government guarantee and an acknowledgement that savings are important, belong to the person and will come back. I understand the only reason the scheme is not compulsory, as it is in other countries is, thanks be to God, is that we have a Constitution which protects - although I give out about it on occasion - the property rights of the individual. In this case, it prevented a compulsory system. That is why the opt-out and suspension are allowed.

While I would like to support this scheme, I find myself in a difficult spot. I am around long enough not to trust institutions. I have never seen them learn proactively. I would have thought we might have learned proactively from the financial crash but that does not seem to be the case. I would like, at this stage, if the person who made that submission, who has won awards and prizes, was given the dignity and respect he deserves from the Pensions Council - if I am wrong, I will say sorry - and an opportunity to back up why his system is better, given that the independent report backed what he said, albeit with certain criticisms.

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