Denis Naughten (Roscommon-Galway, Independent) | Oireachtas source

As Deputy Connolly said, I will take up my 20 minutes, if that is of any assistance to people coming in. The Automatic Enrolment Retirement Savings System Bill 2024 is designed to simplify pension decisions for workers and to make it easier for employers to offer workplace pensions. Under auto-enrolment, employees will have access to a workplace pension savings scheme, which is co-funded by the employer and the State. The introduction of auto-enrolment signifies a shift from a system in which employers may or may not make provision for a workplace pension scheme to one in which every worker will have access to a workplace pension. The joint Oireachtas committee held meetings with officials from the Minister's Department, the Pensions Authority, the ESRI and various stakeholders, including ICTU, IBEC, Irish Life and Insurance Ireland between December 2022 and February 2023.

We set out a detailed pre-legislative scrutiny report and the main issues that arose during the pre-legislative scrutiny of this Bill were the eligibility issues, the contribution rates, the opt-out re-enrolment and savings suspensions, registered providers and the central processing authority, drawdown arrangements, investment arrangements, the waiting period, the management fees and the taxation of auto-enrolment. Sadly, I will not have the opportunity to go through all these issues this evening, but I will go through some of them.

The joint committee made a number of key recommendations, including lowering the age limit from 23 to 16 in line with the PRSI minimum age threshold; the removal of the lower income threshold of €20,000 as it will penalise younger workers and low earners and disproportionately penalise women; that investment good practice should include consideration of sustainability and environmental, social and governance, ESG, factors; that it should be explicitly stated in the Bill that investment funds be prohibited from investing in fossil fuels and the arms industry; and that the total amount of charges should equate to a maximum of 5%. The report of the parliamentary research service on our recommendations stated the Department had taken on board two of the 21 recommendations, partially adopted six and rejected 13, some of which are fundamental to the Bill.

This morning, the committee considered correspondence expressing views about the potential adverse consequences for businesses, especially SMEs, if the Bill is enacted as initiated. The issues identified in the correspondence include that the Bill should encourage long-term decision-making by employees. In cases where employers are obliged to administer the statutory auto-enrolment scheme in parallel with existing occupational schemes, there could be confusion as to each employee's best long-term option. Many lower paid staff might choose to opt out of a qualifying occupational pension scheme in order to opt in to the auto-enrolment scheme and may regret that years later given increases in their salaries which could have an impact on them if they are in the higher tax bracket. I will return to this taxation issue.

Second, the cost of compliance should not be an unnecessary burden on employers. An inevitable consequence of employers having to operate the statutory auto-enrolment scheme alongside their own occupational scheme would be an increase in the administrative burden and associated compliance costs. A solution to this problem could be to amend the Bill to enable employers to implement mandatory auto-enrolment for both new and existing staff into qualifying occupational pension schemes.

The third aspect that was raised was affordability. The ramp-up of contribution rates could place an unnecessary and unmanageable burden on some employers, particularly SMEs operating in low-margin sectors. I hope these issues are taken into consideration before we consider Committee Stage of the Bill.

I will come back to the issue of taxation as it is one the committee considered in great detail. Under the scheme as proposed, for every €3 saved by workers, a further €4 will be credited to their savings account, €3 from their employers and €1 from the State. No tax relief will be available for deductions from salaries or wages for the auto-enrolment scheme. As the Minister will be aware, we made a strong recommendation in our report that the Department carefully consider the tax relief in the auto-enrolment scheme and its impact on the wider pension schemes. There is no alignment between the taxation applied to normal occupational pensions and the auto-enrolment scheme, which effectively means members will never be able to combine their pension pots. They will potentially have two separate pension pots.

In addition, all workers on the higher tax rate in the auto-enrolment scheme will be disadvantaged compared to those on the occupational pension schemes because of the way this is structured. I will not go into the figures on page 27 of our report because they will only cause confusion. People can read the work-out we included and the Department's response to it. In essence, for the same surrender of take-home pay, giving up €60, a conventional arrangement will give a 25% higher addition, €100, to a pension fund than auto-enrolment, at €80. Effectively, under this scheme the amount of money going into the pension pot is one quarter lower than it is in an occupational pension with tax relief. We are saying to lower income workers that the amount they are investing in the fund on day one is 25% lower than what their employers who have an occupational pension are investing. That is what is going into the fund. The argument has been made that the reason we provide tax relief at source for occupational pensions is to ensure people can maximise their initial investment and then the taxation takes place when they draw it down. This is not the case here and it causes the anomaly that funds cannot be combined and that lower income workers are at a disadvantage as regards the amount they are investing in the fund by one quarter compared to their employers.

As the Minister will be aware, the committee has consistently said there needs to be a standardisation of the private pension tax relief. If that was standardised across the board at 30% for all employees, it could be applied to auto-enrolment. At the moment, the State spends just short of €2,500 million per annum on this relief and in Ireland we are spending the equivalent of 2.3% of our annual tax revenue on it compared to the OECD average of less than half of that, at 1.2%. The difficulty is that 50% of all that relief is going to the top 5% of earners, which disadvantages low-income workers. It disadvantages women in particular and has equality impacts.

The Minister will be aware that our committee report put a strong focus on the issue of gender, as we did in all our pension reports because it has significant implications, not only for women, society and our economy today, but on the long-term viability of the State pension. We made a number of recommendations in our report, none of which has been implemented, that would address issues for women and for those in low-income employment, who are disproportionately women. One of the issues we feel strongly about is that the Department should revert to a proposal set out in the straw man approach to allow flexibility for contribution levels by employees and employers beyond the statutory minimum. This particularly impacts women on maternity leave, those on paternity leave and those who take leave due to other caring responsibilities. The Minister has a good record with respect to the support she has provided to family carers through the development of parental and caring leave. Yet, the legislation before us creates a barrier to that because of the way it is structured. It ignores the recommendation that we, as a committee, set out on the matter.

I am really disappointed in the gender implications with regard to this legislation whereby the Minister has not taken on board the recommendations the committee has made. The failure to allow either employees or employers to increase contributions means that employees who take periods of unpaid leave, the vast majority of whom are women, have no capacity to increase their pension pots to bridge any gap that might occur. Similarly, the Bill is completely silent on what will occur with contributions from the employer and the State when a woman goes on maternity leave. Why have we failed to answer that question in the legislation? We have failed to do so. It is disappointing in that regard.

There is another associated issue, which I have touched on, and that is the affordability of the State pension. We need more women actively involved in the workforce. We need to encourage it from an economic point of view, but we need to do it for the sustainability of our pensions. The Minister's officials told our committee that an increase of ten percentage points in the employment rate of workers in this country would reduce the impact in terms of the pension deficit by 2070. It would address that issue. One of the fundamental ways to address that is to address the gender disparities within our labour force.

I attended the launch of the ESRI report on gender disparities in the Irish labour market both North and South last week. The ESRI report emphasised the protective role of higher education against low pay employment, but also suggested that better access to lifelong learning and training would mitigate some of these issues, particularly enhancing job quality for women. It went on to mention other factors such as childcare, tax policies, welfare payments and so forth. This issue of barriers to women participating fully within the workforce is one we cannot ignore. It has significant implications in terms of the viability of our State pension in the long term. Sadly, this particular legislation actually locks in discrimination against women because of the way it is structured for those women who leave the workforce for either maternity or other care reasons.

I am disappointed that the Minister did not look at reducing the age threshold. We are saying that young people of 16 years of age can pay PRSI and pay towards their State pension, but they will not be paying under auto-enrolment towards this private auto-enrolment pension. The reality is that if someone goes into full-time employment at a young age, they, more than anyone, else need access to these private pension funds. The defence that has been made by the Department does not hold water, which is why we made the recommendation we made. We also recommended that discretion should be exercised by the central processing in terms of suspension periods to coincide with instances of indebtedness, maternity leave, bereavement, illness, unpaid caring and so forth. Again, that is not addressed in the Bill.

I want to raise a couple of other issues with the Minister, one of which we examined in great detail at the committee, which is the management fee. As the Minister knows, we examined this during pre-legislative scrutiny. Her own straw man report projected a management fee to be capped as 0.5%. In fact, the view of both Irish Life and the Pensions Authority was that a rate of 0.5% for the management fee would be competitive and compare favourably internationally. However, the Department has revised its approach with regard to this 0.5% management fee, saying that it is low by normal standards and that the actual rate will emerge following procurement exercises. We have to wait and see

The Department has form in this regard. As the Minister knows, the Social Insurance Fund, which our committee has been looking at, has an administration fee of 2.2%, which is significantly higher than was set out in the Department's straw man report and by Irish Life, the Pensions Authority and this committee. We are of the view that rather than setting up a central processing authority, this should be managed within the NTMA. The NTMA has the capacity to make an investment. It has made sound investments on behalf of the State previously and it should be involved in making these investments. We believe the State should have a far greater role in this than is currently proposed. That will benefit pensioners in the long run. We also believe that only investing one fifth of the fund in domestic shares and bonds is insufficient. We are all talking about the huge renewable energy potential off our coast. There is an opportunity to maximise on that. We should put our own pension funds into untapping the offshore renewable energy potential that is off our cost. We believe capping the investment within the economy at 20% is wrong. We have a situation now where foreign pension funds can invest in offshore renewable energy projects in Ireland, but our own pension funds cannot.

Finally, I want to raise an issue regarding the lack of transparency as set out in this legislation. We, as a committee, made a number of recommendations to provide a level of transparency to future pensioners as they invest into the auto-enrolment scheme. We recommended that a drawdown fund be developed to accommodate members post retirement so that people would see clarity with this before they actually invest in it. We still have no idea of what is going to happen as a result of the enactment of this legislation. This is something we are going to see by ministerial regulation at some future date. That is not being transparent in that regard. The committee recommended that investment advice be offered to all auto-enrolment members to allow them to select the most appropriate fund for their age, gender and financial position and circumstance. It is unclear from this Bill whether that will be provided for.

The committee also recommended that clarity be provided in the form of taxation to be applied to pension pots in retirement but no reference is made to that. Based on what we have at the moment, it seems that low paid employees who have 25% less going into their pension pots pay tax at the point of entry. However, we have no clarity on whether they are going to be paying tax when they withdraw that in the future. Yet, those who are on higher incomes and have their own pension pots will only be paying taxation as they draw out of that pension pot at some future date. We believe there is still a lack of clarity here. We believe it is disappointing that many of the recommendations that will provide that clarity have not been taken on board. We would hope the Minister will consider these in detail before this legislation comes before the committee.

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