Dáil debates

Wednesday, 17 April 2024

Automatic Enrolment Retirement Savings System Bill 2024: Second Stage (Resumed)


Question again proposed: "That the Bill be now read a Second Time."

3:40 pm

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Kildare South, Ceann Comhairle)
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Nuair a bhíomar ag déileáil leis seo inné, bhí an t-urlár ag an Teachta Bríd Smith. Níl sí anseo. Rachaimid ar aghaidh chuig an Teachta Ó Cuív. Tá seacht nóiméad aige.

3:50 pm

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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Caithfidh mé a rá i ndiaidh dom seo a leagadh amach, ní leor seacht nóiméad leis an méid atá le rá agamsa a rá. Déanfaidh mé mo dhícheall. Bille ollmhór é seo agus Bille an-tábhachtach atá ann.

There are 141 sections and 95 pages in this Bill. I only have seven minutes to outline my thoughts and that is not sufficient.

I am not totally convinced at the merit of a highly regulated private system over the possibilities of a public system. For the next 30 years, people are going to be putting a lot of money into private funds for private investors and I would rather the State would have that money.

I was impressed by the contribution made by Deputy Gannon during yesterday's debate. He raised some interesting issues. One of the obvious questions is why we are not going towards a pay-related State pension. That goes to a fundamental issue that cannot be answered by the Minister, by me or by anyone else. It is a dread thought that I have. Is the whole idea of this to save money into the future? The only way to save money into the future by introducing this measure is to steadily reduce the real value of the State pension. It will not affect me and will probably not affect too many people in my lifetime but as time goes on, I would worry about that. Of course, I will be assured it will not happen and it will be index-linked until the next crisis.

Another issue I would like to raise is the fact that for every €3 someone puts into a pension pot, the State is going to put in €1. When people put €100 into a pension policy, they get tax relief and a kickback of €40. I have seen calculations done by the Department but it seems to me that if I want to put €100 into this scheme, I have to put in €66.66 and the State will put in €33.33. On the other hand, if a high-income person wants to put €100 into a pot, he or she will put in €60 and the State will put in €40 by forgoing €40 in tax. That seems unfair because it means people at the top end are better off than those at the bottom end.

My other big concern does not relate directly to the Bill but I fear that many pensioners who were comfortably off while they were working are going to be very badly off when they retire. The reason is that until now, the vast majority of pensioners were in local authority housing or owned their houses. That is true of the vast majority of people with whom I deal. In the future, however, a big cohort of people are going to be in private rented accommodation. Those who are on a very low income will get the housing assistance payment, HAP, or State assistance for their housing but those who are on a modest or medium income will have to pay the rent when they draw down their pension and that will become a large part of their outgoings. That is going to create a new poor whom we seem to be ignoring. If I was starting off again and had a reasonable job and was asked to put money into a pension or to make sure I owned my house, I would say that the best pension investment I will ever make is to own my house.

We were told that if we put our money into an investment scheme, it would work out to so much after 30 years. However, we were not told what that would be worth in today's money on the basis of the average inflation of the past 30 years. When I started working, my salary was small. In real terms, it was minuscule. It would be a fraction of today's minimum wage. When you put money into a pension pot, you think you are getting a lot of money, that the money is earning money, but in real terms, depending on inflation rates, it may not be earning any money at all. That is something at which we need to look.

The pre-legislative report of the Joint Committee on Social Protection, Community and Rural Development, and the Islands raised questions. An enormous amount is going to be invested in these funds. The State will put in €1 and the employer will put in €3, as will the employee. Adding €6, €6 and €1 totals €13. Some 80% of that money will fly the island and will not be invested here. Until now, the experience is that only 20% of investments by Irish pension funds are invested in Irish equities and bonds. Perhaps this is addressed in the Bill because I did not have a chance to read all 95 pages but I believe that a mandatory minimum of auto-enrolment funds should be invested in Ireland to ensure that Ireland benefits economically from these funds. I also believe we need to lay it down clearly in the law that there will be good investment practices in respect of sustainability and environmental, social and governance factors. We should ban outright investment in fossil fuels and the arms industry. We should ban investment in fossil fuels because they are damaging the climate and in the arms industry because it is totally immoral to invest in that industry. We live in a world in which if we are not careful, we will not have to worry about pensions because we will all blow each other up long before they become a concern. That, unfortunately, is a real risk at this part of my life. The last time I remember thinking that was during the Cuban missile crisis in the 1960s.

There should also be a statutory requirement to invest in Irish renewable energy developments to ensure our climate action targets are achieved. Without achieving those targets, the question of the future of all pension funds will be at risk from climate change.

Photo of Matt ShanahanMatt Shanahan (Waterford, Independent)
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I do not propose to use the full time allotted to me. My colleague, Deputy Naughten, is the Chairperson of the Joint Committee on Social Protection, Community and Rural Development, and the Islands, and he will speak for 20 minutes later. He has a lot more detail than I have. Automatic enrolment seeks to address the present position of a pension coverage gap and will apply to all employees who meet an age criterion and certain other criteria but are not already a part of an occupational pension plan. It is proposed that contributions made by employees from their salaries will be matched by employers and the State. Workers will be automatically enrolled in the new pension scheme if they are aged between 23 and 60, are not part of a pension plan and earn more than €20,000 per year. The ethos is that with automatic enrolment, employees will have access to a workplace pension savings scheme that is co-funded by their employer and the State.

It is laudable, in the main, to capture those who are not making provision for retirement. However, auto-enrolment will be a significant addition to the payroll costs of businesses in 2025, particularly if there are further large adjustments to the national minimum wage, which the Government has signalled. Many services and businesses now have a labour cost that is in excess of 40% of their turnover and 40% of their revenue. That is particularly noticeable in childcare and nursing home businesses. It also applies to sections 38 and 39 operations. For businesses with fewer than 50 employees, this is going to be a significant cost. They will require further assistance from the Government to meet their auto-enrolment obligations. Perhaps this can be subvented by a lower future PRSI charge. That may be one of the accommodations the Government is considering as part of the small business support scheme or as a budget measure to be announced in September.

The other issue about the scheme referred to by Deputy Ó Cuív is the three different types of retirement savings funds, which I understand will be operated by private insurers who will make some kind of tender or proposal to Government, and they will be chosen as the management partners for these pension investment funds. Workers will be able to choose from a high-risk, medium-risk and low-risk investment strategy. Deputy Ó Cuív has pointed out the small amount of investment by pension funds in this country at the moment, and that is because of the size of our ISEQ. You do not get the movement in shares or the appreciation in values. That is why people go looking at funds in international markets at the moment, particularly in the US. There is also exchange trading and all the rest of it, and currency trading.

Trading could be very volatile, and I would caution that people who are getting into the higher-risk end of pension investment will want to know what they are getting into. It also begs a question with regard to self-administered pensions. Why is this not being addressed? Maybe it is, and maybe I or the Minister should talk to Deputy Naughten. On a self-administered pension, people would at least be able to make their own decisions but, as the Minister knows, that is not available to every employee. In fact, it is quite difficult, generally, for employees to set it up. There are caveats with regard to setting up a self-administered pension. My experience would tell me that if I was getting in with pension providers at a high risk with the fees and commissions they charge, I would probably try to manage it myself as best I could. Where we are with respect to that?

The Minister is setting up a new body to oversee all of this but Deputy Ó Cuív has raised a very important issue, which is the amount of pension investment that is going to leave these shores. We can all remember back to the SSIA scheme that Government introduced here in the pre-2000s. That was a very successful savings scheme that helped a lot of people to buy a house in the late 1990s. A lot of people availed of that scheme, where the Government basically gave them tax-free savings and contributed to their savings scheme at the end of it. It begs the question: should we have some caveats around the management of these pension funds? As Deputy Ó Cuív outlined, we should invest in our climate action strategy and environmental protection. We should also maybe try to grow Irish companies and allow them to scale by offering them investment, rather than basically sending money to competitors overseas. These are just some of the issues that are going to be raised.

I am interested in Deputy Naughten's contribution. He has a wider perspective on all of this. In principle, I welcome the idea of some type of auto-enrolment but it is another cost on small business just announced by Government. It cannot be just blithely introduced where Government has to, year-on-year, force employers to keep on contributing because it will come out of the other end of employment costs. That means it will hit the net income of people in terms of their take-home pay.

4:00 pm

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Kildare South, Ceann Comhairle)
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I thank Deputy Shanahan. Our next contributor is Deputy Murnane O'Connor. Is the Deputy sharing with Deputy O'Dea or is she on her own? Deputy O'Dea is later.

Photo of Willie O'DeaWillie O'Dea (Limerick City, Fianna Fail)
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I am sharing with Deputy Crowe.

Photo of Jennifer Murnane O'ConnorJennifer Murnane O'Connor (Carlow-Kilkenny, Fianna Fail)
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Deputy O'Dea is sharing with Deputy Crowe. That is fine. I thank the Minister, and as we know, auto-enrolment is a sort of mandatory pension system where employees are auto-enrolled into a quality-assured retirement savings system with freedom of choice to opt out. I am going to ask the Minister about that in a minute.

It is important that we give employees the option. This new system would increase supplementary pension coverage, especially for those who have not joined a pension scheme. However, I have concerns. I accept the need to implement this kind of system, given the low rate of pension coverage among private sector workers but there are questions. Are we building in some protections so that workers will not see a fall in the value of their pension pot? That is important, and these things need to be discussed. It is something that I have been asked on several occasions.

While employers are legally required to provide their employees with access to a PRSA if they do not provide an occupational pension scheme, the employer does not have to make a contribution on behalf of the staff member to the PRSA. One in 20 employees with a pension has, as the Minister knows, a PRSA only. Will they be included?

I have concerns for small businesses with this scheme. We need to promote small businesses and enterprise but I am afraid these extra costs will be a barrier to some businesses hiring and retaining staff, and being able to keep the doors open in some cases. These kinds of measures, while welcome for employees, also mean a proposal to increase costs for businesses. I think this would be severe on Irish-owned businesses because this Bill clearly states the obligation of the employer to pay and remit an employee and employer contribution. Among the reforms, we have the sick pay, which is very welcome. We were talking about the living wage, and now the auto-enrolment so that every worker has a pension in line with the programme for Government objective that demands our economy recovers in a way that is fair and balanced, leaves no one behind and is future-proofed against shocks. We welcome this but they are placing a burden on some businesses, particularly in rural Ireland.

I have met with several business owners recently in my own area. We know this has to happen because the one thing we see now is that people are living longer, and that is really welcome. However, people would not live on an old age pension. They would need two pensions coming in to survive, particularly we are talking about a couple and one has passed away. I know from talking to people even as it is now, they cannot survive, so there is going to have to be something like this put in place. The business owners I meet run restaurants and cafés. I met hairdressers recently. Particularly in rural Ireland, we are feeling it most. While they want to do this, their concerns are that they might not be able to afford it. What can we do to help those small businesses that have low numbers of staff and that are not like the big companies, which have a lot more intake? It is important that we give them this chance, and that they are also able to give this pension to their workers. That is what we need to do. We need a level playing pitch so that it does not matter where people work. If they want this, they should be able to get it and the staff that want it can get it, and the business person is able to say, "Right, I am going to do this for you". That is what I wanted to ask.

There is not question that there are huge challenges to this system. While it has to happen, the challenges for businesses are going to be very hard. When we talk about pensions, it is so important, and affordability is the other issue we need to examine. However, with regard to the freedom of choice and the opt-outs, could we get more details on that? What do we do when someone is in that position? Why would they want to opt out if they are able to afford this? It is all about affordability. It is all about looking at the long-term picture where a person, who is maybe a little bit older in life, is able to sustain their bills and have some quality of life. This is what we need to do.

The Government is committed to quality of life and to making sure that everybody can survive and pay their bills. That is a priority, and I welcome that. However, I have been speaking to a lot of business owners, and I just feel that we as a Government need to give them the reassurance that we will not see businesses close, that we will not see people affected by this, and that everybody who is working is in a position where they are able to do this. That would show a commitment from Government, including the Minister, the Taoiseach and the Tánaiste, that we are trying to make sure that we make people as comfortable as possible, and working with them, they have will have that scheme and are not opting out. It will be interesting to see whether many will opt out when this goes through, and I hope it does go through.

I welcome it. I believe it has to happen. However, I want the Minister to consider the small, rural towns and villages that have small businesses, and make sure that they are not in the position where they either have to look at closing, or saying they just cannot afford to do this. I thank the Minister. I welcome this, and I will support it. We have to let the people know that we are trying to do our best to make sure that they have a quality of life.

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Kildare South, Ceann Comhairle)
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I thank Deputy Murnane O'Connor. We will now go to Deputies McGrath and Healy-Rae.

Photo of Mattie McGrathMattie McGrath (Tipperary, Independent)
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Gabhaim buíochas leis an gCeann Comhairle. I am not sure if my other colleagues will be joining us. I am glad to be able to speak today on this as well.

While it is of vital importance and very noble that we have a pension for employees who are not in the public sector, this is coming on top of so many other pieces of regulation and bureaucracy, especially for small businesses. I have to declare an interest as I speak as one of them myself. My business has up to 25 employees and we have offered pensions to them over the past ten years, and there is opt-in and opt-out. I am afraid of this big sweeping brush the Minister has brought down from the, well, I cannot say the hills of County Cavan, but perhaps the boggy land or the turf areas of the county. One broom sweeps all. This is going to have a disproportionate impact on businesses, especially ag an am seo. Businesses are just hanging on by their fingernails at the moment. Deputy Collins raised this issue with the Taoiseach earlier during Leader's Questions. Quite honestly, the Taoiseach, many Ministers and many officials who are being paid from the public purse do not get how difficult it is to keep the doras ar oscailt gach maidin. It is just a nightmare. This has especially been the case since Covid, Brexit and you name it.

I have just come from a policy briefing with people who want to plant land. It is just an impossibility. We have been here like a bad record, especially since this Government came in and the Minister of State, Senator Hackett. Forestry is being decimated. The knock-on impact is that we are not going to have the carbon sink from those trees because we do not have them planted. I am sorry for digressing, but there are many self-employed people in forestry as well. To get into forestry now, it is necessary to get a licence to plant, a licence to thin, a licence to put in roadways and a licence to fell trees. I have missed one other licence. Someone needs to get a licence to insist on common sense in Departments because there is no common sense. It has just gone out the window. It has gone so bad with regulations and that kind of carry-on. We will set the spuds and sow the barley, if we can do so at all this year. The Ceann Comhairle will know this. We have an expectation and a right to sow and reap a crop to provide food and make a small profit, and, more importantly, supply the food chain.

What is going on in the forestry sector is just outrageous, but this situation is replicated across many sectors. On the matter of rates, I was talking to a businessman this morning who lost €100,000 in his fine big shop, petrol station and post office last year. What happened this year? His rates have not been doubled but trebled. There is no correlation between taking account of the difficulty of staying in business, keeping the doors open and the lights on, providing work, getting the contracts, fulfilling them, having the equipment to do them and having the good staff. These businesses have good staff. We have great staff in our business. We thank them and we could not manage without them. However, there is a need to go forward together here in a measured approach and to sit down with small companies and understanding there are limits. It is not possible for the Government to just say it is imposing a pension here.

Deputy Murnane O'Connor went down the same road as I am regarding this issue of the difficulties for small businesses, yet she is supporting this legislation and will vote for it There is no logic here. Businesses are on their knees and they will not be able to keep going. They are not able to keep going. As I said, it is every old thing. We were told the cost of insurance would come down, but it has gone through the roof. This will be the case until such time as the Judiciary is regulated, as well as the legal claims process and the whole revolving door situation. It is unbelievable.

Let us take businesses and retailers and the amount of pilfering and loss of goods and money. I heard only recently, regarding a big shop, that 30% of its business is being affected in this way. The members of the Garda are doing their jobs, if they can at all, and bringing people to court, but the people concerned are out again before the gardaí have left the courthouse and are back doing this again. We talk then about this system, which is noble. I do accept that people could not and cannot live on the old age pension. A couple might have some hope, but only with great difficulty. Unfortunately, however, if one of them gets sick and passes away, the widow or widower left will find it extremely difficult to live on the old age pension. This is driven by the spiralling costs of everything pensioners consume and need to consume with the dearest electricity prices in Europe and the dearest fuels. We are now being hit again in respect of the cost of fuels and home heating oil, carbon taxes, you name it.

We badly need common sense and an understanding and some kind of mechanism that allows people to opt in.

4:10 pm

Photo of Danny Healy-RaeDanny Healy-Rae (Kerry, Independent)
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The five minutes are gone.

Photo of Mattie McGrathMattie McGrath (Tipperary, Independent)
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Gabh mo leithscéal. I am lucky-----

Photo of Ruairi Ó MurchúRuairi Ó Murchú (Louth, Sinn Fein)
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There are five of you for four minutes, so why-----

Photo of Mattie McGrathMattie McGrath (Tipperary, Independent)
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No, there are only four. Gabh mo leithscéal.

Photo of Michael CollinsMichael Collins (Cork South West, Independent)
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This Bill is a significant step towards enhancing pension coverage in Ireland. However, like any legislation, it has its share of challenges and potential disadvantages. Employers will be required to contribute to the retirement saving system. For some smaller businesses, this additional financial burden may pose a challenge. While automatic enrolment aims to increase participation, some employees may resist being enrolled. They might prefer to manage their own retirement savings or have concerns about the impact on their take-home pay. The Bill does specify investment options or guarantee returns. The retirement savings of participants will be subject to market fluctuations, which could lead to varying outcomes. Establishing and maintaining the system will require administrative resources. Ensuring smooth operation, compliance and communications with participants can be complex. Although participants can opt out, some may forget to exercise this option. They might remain enrolled even if it is not in their best interest. The system's success depends on equitable contributions from employers, employees and the State. Ensuring fairness and preventing exploitation is crucial. While the Bill targets employees without existing pension schemes, there may still be gaps in coverage. Some workers, such as those in the gig economy and part-time workers, may not benefit fully. The success of the system hinges on its long-term viability. Adequate funding, efficient management and adaptability to changing demographics are essential. Depending on market performance, the accumulated savings of participants may not be sufficient for a comfortable retirement. If not well communicated, the automatic enrolment system might face resistance or scepticism from the public.

It is essential to address these challenges proactively and to continuously evaluate the effectiveness of the system to ensure positive outcomes for all stakeholders. If there is a market crash, a severe economic downturn will occur. This will cause investment portfolios within the system to plummet. Participant's retirement savings would suffer substantial losses, thereby impacting their financial security. If the administration fails, the administrative body responsible for managing the system would face inefficiencies. Errors or corruption, incorrect contributions, lost records and mismanagement lead to chaos.

The Bill states that employers will be required to contribute to the retirement saving system. How much more will the employers have to take on their backs? I was here in the House, and I think the Minister was here as well, when I questioned the Taoiseach. It was genuine, because I presume the situation is the same in Monaghan town as it is in Skibbereen. People are going out of business, one after another. They are banging up against the wall. Their doors are closing, and there is no sympathy coming from the Government. Warehoused taxes is the next subject they are worrying about. If we are, therefore, going to bring in something like this and put it up on top of the employers' backs, mainly, or partially, this will be another step leading to the closure of more businesses. This year so far, some 288 have closed, only in the past few months, including restaurants and cafes, and not a sympathetic ear is there on the other side of the House here. I cannot understand how out of touch a Government or politicians can be.

Surely be to God, it is obvious that the VAT rate needs to immediately drop from 13.5% to 9%. Maybe the Government can then start looking at asking employers to give some contributions. The minimum wage has gone up and the employers are aware of this. There are extra costs from water in and water out, waste, electricity, etc. I can name all the areas and everything here that is coming on top of employers. If it is a restaurant, a cafe or whatever, what happens is that these businesses have to put these costs on the table. This means people are not coming in. The Minister refers here to the retirement saving system posing an additional financial burden for small businesses and the participants. Certainly, however, there are businesses out there now that are in a desperate position.

I am shocked that this Government has not got a sympathetic ear for them. Last week, the new Taoiseach said these businesses would be given mentoring and advice. God Almighty, people were furious when they heard that. It was an insult to people who have been in business all their lives but are now going out of business. I ask the Minister, therefore, to have a sympathetic ear in this regard. Pensions are very important to allow people to have a few bob when they retire. Certainly, however, the employers should not be burdened any more.

4:20 pm

Photo of Richard O'DonoghueRichard O'Donoghue (Limerick County, Independent)
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As an employer, I believe that we should work for the future. I am very lucky with the people I employ - the family as I call them. I have been self-employed all my life and I believe that working together, we create businesses together and we support one another's families. Businesses across all sectors are feeling the pinch. The only place not feeling the pinch is the Government coffers. We spoke about the VAT rate. To simplify it, if someone is paying €10 for a plate of food, since inflation went up, the cost went up and the VAT rate went back up and the Government's take also goes up. The people who are going out every day, trying to live, are paying more. They are earning more with the minimum wage increase, but it is costing them more to live. What does the Government do? It comes again with something else on top of it.

Every employee needs to be protected. Every business also needs to be protected so that it can protect the employee. I said it already. Since the increases came, inflation came and the VAT rate has gone up, a function such as a wedding is now costing an extra €4 per plate. It is 70 cent extra for a cup of coffee to make sure that it covers the costs. On top of this, Revenue has come in on businesses that are already struggling with high electricity costs. There are higher PRSI costs when people are earning more, so the employer has to pay more again and the person who earns more pays more.

On top of the VAT increase, there are now five sick days. All of this has to be paid somewhere. No matter what business, the business owner must put into the books how they are going to pay for it. If the business has to pay more for its employees, its products and its whole business, it needs to charge more. The person getting the minimum wage has to pay more. In other words, the minimum wage is worth nothing to them. They have got no increase and in fact they have got a decrease because of the cost of living. However, the Government's tax take is going up and up.

As for the millions it is taking in, it has no concept of small business. It is one thing for an international business to sustain a small increase but small businesses in communities that are providing a service at a very small margin are being wiped out. Many of our children work in hospitality, local shops and different businesses locally to put them through college. Their income is being wiped out because of inflation. Why does the Government not reduce the VAT rate to 9% as we have called for? It should treat international business as one sector and SMEs as another sector. It should look at them based on their turnover and see what their profits are at the end. Small businesses are on their knees. They are the same businesses that want to look after employees and their customers but the Government is treating them like international businesses as if they can make massive money to pay out; they cannot. These are the same businesses in all our areas that are putting food on our tables. Our local shops and local restaurants are all incurring massive costs and they also have the energy costs on top of that.

The World Rally Championship was to come to Ireland and the Government waited until the last minute to tell it it was not getting the funding. That required an investment of €5 million from the Government, and the hospitality sector and all the businesses across Ireland would have got €95 million in return each year. It would have brought in €300 million for a €15 million investment. The Government never looked at that; it dismissed it. All the infrastructure would have been put in place for this and it would have brought in funds to help these same businesses the Government is now trying to close down. What good is that? The Government is supposed to be working here for all communities, for the working class of all communities, but no, it is treating all businesses in this country as if they are massive international businesses and it is closing down the businesses that voted for the Government parties.

Photo of Danny Healy-RaeDanny Healy-Rae (Kerry, Independent)
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I am glad to get the opportunity to talk on this very serious matter. I am an employer, as was my father going back to 1955 and my son now operates the business. That is almost 70 years. Friday evening, pay day, comes very quickly for businesses. This could be the best country in the world if it was managed properly. TDs on this side of the House are saying the country is awash with money but if it is, there are people paying for it. People are paying for excise and VAT on diesel and petrol. People who have to travel the roads to get to work are paying an exorbitant price that is not being paid in any other country. A barrel of oil is cheaper today than it has been for a long time in spite of what is happening here in Ireland. There is reckless squandering of money.

The Government is telling us that we must opt into this EU migration pact. How is it that we must do that, based on what the Government tells us, but Denmark and other countries are not opting in at all? Let us take Denmark as an example. It has a proper home care service for its elderly people, who are looked after mostly at home. Rarely is there a need to go into a nursing home or community hospital because they are being properly looked after and properly paid for there. It is impossible to get home help for elderly people to keep them at home. People may get 20 minutes in the morning and 20 minutes in the evening. They get nothing for the weekend, particularly on bank holiday weekends. Is it that people get better for the weekend like Lazarus and then get sick or elderly again on Monday when they get a few minutes of care? What is happening is a shame.

Let us consider what businesses have to go through. It was grand to increase the minimum wage but it increased the maximum wage as well, because people go up pro rata and businesses feel that on top of all things, such as the VAT and the holidays. It is grand to give holidays to people and it is powerful, but someone has to pay for it and it is businesses that have to do it.

This is not clear at all. Will this pension be on top of the pension that people are getting already? How many years of contributions are needed to get a full contributory pension? The Minister has said it is from the age of 23 to 60, but people are working much longer. If they are earning under €20,000 and do not opt in, will they qualify for any pension? We have to ensure the pension age will not be increased. The Minister needs to realise that many people are paying 40% tax, some of them 52% in tax and 4.5% USC on top of that. We see €860,000 being spent to bring dogs and cats into the country and the country is alive with dogs. I wish the dogs could vote for me; there are dogs around in every yard. We have plenty of dogs without paying to bring in any more dogs. There are plenty of cats as well.

Up to €2.5 billion is being spent on migration. We spent €29 million on the referendum. Imagine what that would do for cancer patients. I saw a group of people last Sunday morning collecting for Kerry Cancer Support Group Healthlink Transport to take people who have cancer up to CUH for treatment. That has to be funded by volunteers. That is a shambles. I know these people are doing great work and we appreciate them for what doing in looking after their people. The Government could be doing much more and doing much wiser things with its money than squandering it the way it is squandering it.

People will not be able to stick it for long more. I am serious about that. I am not blaming the Minister personally and there is a whole gang of Ministers there. The Taoiseach rumbled through his speech so fast yesterday that we could not hear what he was saying. It was bubbub, bubbub, bubbub and no one knew what he was saying. We did not know who the Minister was in the way he went on with it. That was the case with junior Ministers, in any event. That is the way that our money is being squandered while getting no accountability at all for the money that is being squandered. The people out there are angry and that is what I am telling the Minister.

4:30 pm

Photo of Ruairi Ó MurchúRuairi Ó Murchú (Louth, Sinn Fein)
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Gabhaim buíochas leis an Teachta. Ar ais go dtí an Rialtas. Is Deputy O'Dea taking the seven minutes?

Photo of Willie O'DeaWillie O'Dea (Limerick City, Fianna Fail)
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I am informed that I am sharing with Deputy Cathal Crowe but if he does not appear, I will continue on.

I thank the Cathaoirleach Gníomhach very much and I am very reluctant to interrupt Deputy Healy-Rae whose speech I was enjoying immensely.

I sincerely congratulate the Minister on bringing this legislation forward. It is very timely in view of the fact that it has been approximately 25 years in gestation since the late Séamus Brennan first mentioned it. In the UK, auto-enrolment has been in place for 12 years now and in New Zealand it is 17 years. It has worked extraordinarily well in both those countries. However, there are significant differences in how they operate as opposed to what is proposed here. The one thing that this legislation will achieve is that it will make a small dent - I would not say a very significant dent - in the pensions apartheid we have in this country. When I mention pensions apartheid, I make the distinction between the public and private sector. A recent actuarial report revealed that the State is contributing approximately 7% of salary per week towards private pension provision whereas in the public sector, the figure is between 25% and 30%. In some professions, it actually goes over 50%. In addition the public sector pension is a defined benefit scheme. One does not have to depend on the vagaries of the market and is not exposed to that. One retires on a certain salary and one receives a certain percentage of one's salary. That goes up in accordance with the increases in the corresponding grade in the public sector for those who are still at work.

The auto-enrolment scheme will provide a defined contribution pension scheme for people over the age of 66 who qualify for it . There is a world of difference between a defined benefit scheme and a defined contribution scheme, the former being much more valuable. However, for all that, the legislation is very welcome, particularly after all of this time.

There are one or two questions I would like to ask the Minister. I have not had time to study the Bill in great detail as of yet, as it is a very long Bill. Looking through the Bill as much as I could today, I notice a significant increase in bureaucracy. There is the central processing authority, then there is a new body being created called the national automatic enrolment retirement savings authority, the functions of which are not quite clear but perhaps when I read the Bill more carefully, they will become clearer. Everything is supervised by the Pensions Authority. That is a huge build-up of bureaucracy. Do we really need the central processing authority? At the moment, social insurance is being deducted. The employer takes it off the employee and he or she hands the employer's and the employee's share over to the Revenue Commissioners and they operate the system. The machinery is already there so what is the need to create all of this new machinery, which, I imagine, is going to be quite expensive?

First, I do not understand why this is being handed over to the private insurance and pensions industry to be managed. It is a State scheme. People will say that it does not make any difference and that if the NTMA were given the job to manage these funds, it would have to invest in the private sector anyway. However, the experience of many people during the recent financial crash has totally eroded confidence in the private pensions business. That has been my experience from talking to people and from my engagement with a number of victims of their investment policies. This is what it resulted in when people finally reached pension age, in many cases to find out that their savings had been literally wiped out.

Second, the returns enjoyed by NTMA compare very favourably with what is being achieved in the private sector. In addition to that, as I believe Deputy Ó Cuív pointed out earlier, if this huge fund stays in State hands to invest, we can control the investment to some extent and ensure that much of it stays here rather than giving it to the private sector, which will invest the vast majority of it abroad.

There is then matter of profit versus exclusive concentration on the pensioner, which would be the approach of the State and of the NTMA, if one does not have to keep one eye on what profits will be derived from being involved in this particular scheme. With a State scheme, it would make logical sense that the State should directly invest the money, through the NTMA, where the expertise is. That would be the normal process. If we are departing from the norm here and if we are handing it directly over to the private sector, there must be some justification for that. I would like if the Minister in her response to explain why it is being done this way rather than being done directly by the State, which is the norm.

There are a number of further different issues in the legislation which she might also address when she is winding up. For example, I understand that if people are part of an existing scheme, the employer is not obliged to transfer to the auto-enrolment scheme. What, if the existing scheme is less valuable to the employee than the automatic enrolment scheme? I am sure that that is probably provided for.

My other question relates to the cap of €80,000. My interpretation of that is that in year ten, when we are up to 6%, then 6% and 2%, that a person on an €80,000 income would have to contribute 6%, which is €4,800. However, if they are in receipt of an income of €200,000, it is still €4,800. Is that calculation correct?

I take the points made by Deputies Murnane O'Connor and Mattie McGrath and others on the burden on small businesses. The centrepiece of the Taoiseach's Ard-Fheis speech was help for small business and he was going to achieve that mainly by a reduction in employers' PRSI. Will this offset the reduction in employers' PRSI so that we will finish up where we started?

Finally, I notice that more and more legislation provides for regulations to be introduced to deal with some of the detail of how we deal with bogus self-employment and with its creation, etc., in this context. We never get the opportunity to debate the regulations. Will the Minister consider that because I think that the regulations under this legislation will prove just as important as the legislation itself?

Photo of Catherine ConnollyCatherine Connolly (Galway West, Independent)
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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.

4:50 pm

Photo of Denis NaughtenDenis Naughten (Roscommon-Galway, Independent)
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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.

5:10 pm

Photo of Leo VaradkarLeo Varadkar (Dublin West, Fine Gael)
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I thank the Cathaoirleach Gníomhach for the opportunity to share some thoughts and reflections on the legislation before us. I welcome the Bill, which, of course, I will support. I want to take the opportunity to recognise the Minister, Deputy Humphreys, and her officials for bringing it to this point, and also previous Ministers such as Senator Regina Doherty and previous officials who brought it to the point where we are today. It is not perfect, but it is very good and important. It is very real progress that we need to make as a State. I know this from my own time as Minister for Social Protection between 2016 and 2017, it was part of our work programme and the pensions roadmap. It is great to see that so much has been done by the Minister, her team and others, including the work that has been done particularly on the flexible pension age.

I know the amount of work and time that is put into all these types of measures, including taking into account all the different submissions and conflicting opinions. The late Seamus Brennan first mooted introducing this measure 25 years ago. It certainly has been in the pipeline for a very long time. In many ways, it is a pity it was not done back then. If it had been, there are people retiring today and having to get by on the State pension alone who would now have 25 years of pension savings in addition to their State pension. It is a real shame that it sometimes takes so long to make important reforms like this.

This is significant legislation that will have an impact once enacted and up and running. It will matter more ten, 20 or 30 years from now than it does today. I see it as being very much in the same category as the future Ireland fund legislation that is currently being brought through the Houses by the Minister, Deputy Michael McGrath. These are measures that will make a big difference for our society and our country, not now, not at the next election or even the one after it, but beyond that. It is a good reflection of long-term thinking by the Government.

We often talk in this House and in politics about the importance of making work pay, rewarding work and rewarding those who make a financial contribution to society. Of course, there are many very valuable ways in which people make a contribution to society and it is not always a financial one. However, without people making a financial contribution to society, there would not be funding for education, health, care, security or anything else. That is why it is important that we reward those who work, pay taxes and pay into the social insurance system. That can be done in many ways, whether through higher pay, lower personal taxation, better family leave or better benefits, such as the pay-related benefits the Minister is bringing through. It is also about making sure that many State-provided services are not means tested, which can count against the working person. It is good to see the more universal programmes we have now, including childcare deductions, free schoolbooks, the school meals scheme and reductions in college fees.

One of the best ways we can reward work and make work pay is to make sure everyone has a better pension. When this scheme is up and running, every worker will have an occupational pension in addition to his or her State pension. That is not the case at the moment. In many ways, as the Minister said, the scheme offers a sort of pension-plus, with additional retirement savings available on top of the State pension.

I acknowledge what Deputy Naughten said regarding equality and the impact on women. We have to compare what is proposed against three different measures, that is, where we are now, where we are going to be and where things might be perfect. Certainly, in terms of equality, this is a big step forward, in my assessment. We have a real pension inequality in this State, with people who work in the public service and in big companies generally having very good pensions, as all of us in this House do, while people who work in small and medium enterprises, the self-employed, people who work for NGOs in the voluntary sector and contractors such as security guards, contract cleaners and home helps, for example, rarely have any pension at all in addition to their State pension. Most of those categories of people are on lower pay. Most are women or part-time workers. They are going from having no State pension to having something in addition to the State pension. That is a step forward, certainly from where we are right now.

I am reminded of the disputes over pensions for community employment scheme supervisors. That issue would not have arisen had we implemented this scheme 25 years ago. If we had done so, they would have had a pension. If this measure had been introduced back then, all the people who now work in drugs task forces and local development companies, home helps, people working in voluntary bodies and security guards would have pensions now. In many cases, the contribution to their pensions would have been a direct contribution from the State, not as their employer but as the funder of the organisations for which they work.

This scheme will be useful in giving people a feeling that they have a greater stake in society. Somebody with a relatively modest income will be able to build up a pot of pension savings of €200,000, €300,000 or €400,000 over the course of their working life. That will help people to think differently about money, taxation and markets. If markets go up, the value of their pension pot will rise. They will get a benefit from company profits. Many people feel they get no benefit from those profits at the moment, which, indeed, is very often the case, other than through corporation profit tax. Interest rates will be thought about differently. People will think more about bond deals and the solvency of states. It will get people thinking in a different way about the State and society if everyone has, as everyone will have, savings on retirement of tens or hundreds of thousands of euro. It is a bit like becoming a homeowner. When people become homeowners, they fundamentally see things differently, just as they see thing differently when they become parents. Everyone having savings of hundreds of thousands of euro on retirement will make people think differently and in a better way, in the round, for our society.

We are coming to the table relatively late on this issue. The UK has had automatic enrolment for some time. Singapore has had it for decades. Anyone who has lived and worked in Australia will know about "superann", which is the system that country has had in place for a very long time for all workers. New Zealand has the KiwiSaver scheme. An OECD report indicated that Ireland is one of only a very small number of countries, or perhaps the only one, that does not have some form of system like this. The introduction of the scheme is very much overdue.

If I were to offer any advice to the Minister it would be to push back against any attempts to delay the introduction of the scheme. I can understand the temptation, heading into elections, to put it off because it could be awkward if people see money coming out of their pockets. I understand the pressures SMEs and small companies are facing by way of rising costs. However, there are ways around these things. When it comes to the impact on business, for example, the Low Pay Commission could take this provision into account in its recommendation on the minimum wage for next year. It should do so because this is about pay, albeit deferred pay. There is a risk that if the introduction of the scheme were put off until 2026 or 2027, a new Minister or even a new Government might be less enthusiastic about it. There is a risk that a window of opportunity to get it done, which was missed in the past, could be missed again. I want to make that point strongly.

It is important that people will have a personal pot of retirement savings that belongs to them. It is not like the National Pensions Reserve Fund. The Government cannot raid it. That is the other side of there not being a Government guarantee. It means the money belongs to the individual and is his or her private property. It can never be raided by the Government in the event of a crisis. Giving people a choice regarding their own investments is important as well. It is one of the reasons we should guard against a Government guarantee or excessive Government involvement in how investments are made.

Deputy Naughten made some very valid points that need to be replied to in regard to people being able to make additional or higher contributions. Why would we stop people from doing that if is what they or their employer want to do? The Deputy also spoke about maternity leave. We know the good work that has been done by the Government in recognising breaks in people's PRSI contributions as a result of caring duties. Why not fix that issue now and find a mechanism by which people can make contributions while they are on maternity leave or taking care leave for some reason?

In regard to younger workers, the age threshold of 23 is reasonable. Provision is there for people to opt in before the age of 23 if they want to do so. It is not that they cannot do so. It is just that a cut-off point has been chosen for reasons that seem logical to me. Younger, full-time workers can opt into the scheme. Requiring people who are only working part-time while they are students to opt out probably does not make a huge amount of sense.

The trade unions have raised some issues in respect of anomalies around people who already have PRSAs. I am not sure whether their points are correct but they do need to be responded to. It would be terribly unfair if people who had already set up a PRSA were disadvantaged in some way under this scheme.

We should avoid any calls to allow people to dip into their funds too early. That would undermine the whole purpose of the scheme. I understand the thinking behind such a proposal, but it would undermine the whole purpose of people having pension savings if they could dip into them for other reasons.

The issue around tax treatment really does need to be clarified. It will be done in the Finance Bill. Let us not make that a reason to put off dealing with it. The next Finance Bill is six months away, which gives plenty of time for the matter to be considered. Certainly, we cannot have a double taxation arrangement whereby contributions are taxed on the way in and the way out. It must be one or the other. Otherwise, it would not be fair. Whatever is done in terms of tax and State support needs to be roughly equivalent to what is done in terms of other pensions, or the scheme will fall into real difficulties.

The legislation prohibits local authority members from being members of the board of the new authority. We ran into that issue in other legislation. I do not necessarily understand why it should be the case. The Minister does not have to appoint councillors but he or she should not be prevented from doing so. I wonder why this provision is included. It has been taken out of other legislation.

There is also the question of whether income over €20,000 will create a step effect. We know about all the problems that other step effects cause. All of a sudden, just because you earn €1 over €20,000, you can end up worse off in terms of take-home pay. We need to think about the step effect in this context.

It is not clear from reading the explanatory memorandum what happens with migrants who work in Ireland for only two, three or four years in their 20s, leave and do not come back, or perhaps Irish people in their 20s who, after paying into the scheme for only a few years, emigrate and do not come back here to retire. Is there a way for them to capitalise and take their savings back, or will they have to wait until they are 65?

5:30 pm

Photo of Richard BrutonRichard Bruton (Dublin Bay North, Fine Gael)
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I welcome the introduction of this legislation. It has indeed been a long time in gestation. I suspect it is probably a decade since this was first thought about, if not more.

Photo of Heather HumphreysHeather Humphreys (Cavan-Monaghan, Fine Gael)
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Twenty-five years.

Photo of Richard BrutonRichard Bruton (Dublin Bay North, Fine Gael)
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There is a great need. I have not seen the most up-to-date figures but from recollection I believe that about 40% of people in the workforce do not have any pension cover. That applies to both men and women although it is probably more acute with women, so there is a huge gap. The legislation begins to address some of the anomalies concerning how we treat pensions provision. We have a very strong pension in the public service and many parts of the private sector do not have anything like it. There is no doubt that even the tax-based supports are very skewed towards people who are professionally well advised and in a good position to put aside money rather than those who are not. You can get a relief of 40% if you are on higher pay but a relief of only 20% if on lower pay. Therefore, there are many anomalies in the way we currently address pensions provision. This legislation will begin to address those.

It is important to recognise that the legislation will begin to address income inadequacy in retirement but it will be a long time before we see it doing so significantly. People will need to be reassured that the State has a long-term commitment to the development of the contributory old age pension and that there is no way in which the trajectory, which I believe is towards a certain percentage of income, will be impacted by the setting aside of a top-up. If something like one third of income is to be supported by the contributory pension, reassurance is required that it will not be in any way diluted by our opting for auto-enrolment. I was not here for the Minister's speech yesterday, unfortunately, but I believe this is an important principle that people should be reassured about.

The contribution by the taxpayer may cause raised eyebrows. The employee puts in 1.5% and the employer puts in 1.5%, but only 0.5% is put in by the Exchequer. The income tax relief can be up to 40%, and I presume the corporation tax percentage is up to 12.5%. It seems that what would look like a 52.5% tax relief top-up, were it just going into a tax scheme, would be diluted down to one third. Maybe I am misreading it in that there will be some other tax allowance. If the contribution is the sole contribution by the State and there is no tax break on the money going in, the amount seems slightly low given that both the employee and employer make a contribution to the fund.

The question of whether it makes sense to have the pension fund split into individual pension accounts with their own risk management profiles and investment strategies has been raised. I am quite persuaded by the argument that, for a fund like that proposed, which is to be managed centrally by the auto-enrolment board, there is a strong case for a policy to maximise the return to the fund in which people would own units. The units would be based on their contributions. People do not need to have a personal account that goes into lower risk as they approach retirement. They simply should be realising their units. Those units will have a fairly stable value within an overall portfolio managed by the fund. The fund should do the anticipation, and if it needs to put a floor under those elements that are going to mature at an early date, it should be done at general fund level. There should be an approach whereby we seek to maximise the return on the investment and take advantage of the economies of scale that a large central fund manager would result in. One would not see a private pension fund breaking up the management of its fund into individual pieces for each worker; it would not see that as sensible. It would manage the fund and provide an annual return to everyone based on its performance, not the performance of everyone's individual piece of it. It would not ask people to make decisions on whether they wanted a low-, medium- or high-risk strategy; they would be using an overall strategy. That would reduce management fees and reporting costs and improve overall performance. I remain to be persuaded on why we are opting for a very unusual approach in which people would have an individual classified fund as opposed to owning units in a larger fund.

The requirement to retire at 66 is completely out of kilter with a proper approach to retirement in a world in which we are living longer. I am disappointed that the legislation continues to refer to retirement at 66. Our enterprise committee recently produced a report indicating that 60% of women would be happy to work beyond retirement age and that 40% of men would be happy to do so. If we are to live 20, 25 or more years after the conventional retirement age, we should be able to live life as we choose and not be subjected to compulsory withdrawal from the workforce or from the opportunity to contribute to the fund. It is a little perverse, if the Minister is encouraging people to continue to work under the PRSI scheme, to leave intact the compulsory retirement dates. The argument will be put that employers do not want to have individual conversations with their employees to ask whether they are still fit to do their jobs. Thankfully, no one has knocked on my door to ask whether I am still fit to do the job I am doing. If we are to have the huge opportunity I have alluded to, it is very ageist to envisage a compulsory age at which you should stop learning and working, at which time you should associate only with people of your own ilk. We are building it into our thinking about post-retirement provision. The reality is that, even with the scheme, many people will still be short on their pension provision, and many of them would like to continue to make contributions so they can work longer and, perhaps, have a more comfortable retirement after they decide at a later date to wind down.

I will probably bore the House with the next issue I wish to raise because I raised it already in respect of a different subject. We need to take a hard look at our approach to ageing.

I have been doing work around this. We are seriously failing to take advantage of the fact that most people's lives are 20 or 25 years longer than would have been expected a generation or more ago. We have a pandemic of isolation in the country among people who have dropped out of the workforce and find themselves isolated. It trebled during Covid and remains at elevated levels. Two thirds of people report isolation at some stage. Some 10% of people over 65 report painful isolation. We need to think creatively about how that can be addressed.

I think ageism is rampant in the way we talk about issues. We talk about pension timebombs instead of talking about the opportunities for people to continue to contribute. We talk about dependency ratios as if people at 65 or older are all the same and are a burden on those who are still at work. This is damaging. Not only is it damaging in narrowing the policy options that we consider, but it is actually contributing to the health costs that we might have to plan for. Isolation, loneliness and loss of connection are the greatest contributors to the loss of functional capacity, which in turn contributes to the high cost of healthcare for people who have lost those capacities.

This is great but it is really just scratching at the surface of the new thinking is needed about how we deal with the fact that we are all living longer. It is the greatest achievement of humanity to have this longer life. I was disappointed to see that the commission, which should have been a commission about taking advantage of longer life, is a commission on caring for older people. It is pretending that the issue of longer life is about care, decline and loss of capacity. It is not. It is an opportunity to do things that we were not able to do before. We can contribute to society in all sorts of different ways. When you think of the effort that we all collectively put into planning for the first 25 years of life - I am delighted to see that a childcare development agency will be put in place and that we are now looking at much earlier intervention to support the early years - you realise that we have not put anything like the same thought into how we make the last 25 years as productive and fruitful as possible.

I am doing a bit of work on this with the Fine Gael policy lab. I will be approaching Ministers in the Government and knocking on their door to ask them to think more boldly. One thing I noted in the speech that the former Taoiseach made when he stepped down last week was his assertion that we need to be bolder. We are living in a much larger economy than even 12 years ago. It has much larger needs and a vibrant population of people who, according to today's legislation, should be retired and not working. We need to be bolder and more ambitious in how we take advantage of the opportunities that provides. Public policy needs to take its head out of the sand and look at what the opportunities are here.

5:40 pm

Photo of Patrick CostelloPatrick Costello (Dublin South Central, Green Party)
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I rise to underline some of the elements from the pre-legislative scrutiny report that would strengthen the Bill but are strong enough in the legislation as written. When the committee considering the matter, it highlighted important things in relation to the governance framework, sustainability, environmental, social and governance factors, divestment from fossil fuels, prohibition of fossil fuels and requirements to invest in sustainability, renewable energy and Irish wind. I look at things like section 74, in which the language in the legislation states that it may take into account environmental, social and governance factors. That "may take into account" is sandwiched between much "shall invest" and "shall comply". We know that the language of "may" is very weak in legislative and judicial terms and does not really create any strong obligation. Equally, section 75 talks about taking into account. Again, this is not the "shall" or the "must" that we see in other elements of the legislation.

It is important to underline the need for these investments to be sustainable into the future. As is often said at climate change protests, there are no jobs on a dead planet. There is no need for a pension if climate change is going to eradicate society as we know it or if it is going to cause such disturbance that pension pots are essentially worthless because runaway climate change has destroyed the economy as well as destroying the planet and livelihoods. It is about investing in sustainable energy in a way that is not supporting the fossil fuel industry. I would argue it is essential for prudent investment, ensuring that there is a future in which people who have been automatically enrolled can actually claim their pensions. I would underline the need for these kinds of things.

There is a wider conversation to be had here. As has been said by other speakers, we are looking at the future Ireland fund. We need similar rules and similar thinking there. We are talking about the need for long-term thinking. Many people here have spoken about the need to think about the long term. For many people I know, it is hard to think in that way because of the crushing reality of climate change. We need to look at this Bill is a climate-positive way. That "may take account of" or "have regard to" needs to be a "must" or "shall". There needs to be much tougher, stronger language to ensure that the State's aims and money are reflected in the investment portfolio and, equally, that the investment portfolio will have a chance to mature and that people will have a chance to get to an age where they can claim a pension because society has not been undermined by climate change. These are absolutes that have to happen. We need to strengthen the language in the Bill in that regard.

Photo of Heather HumphreysHeather Humphreys (Cavan-Monaghan, Fine Gael)
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I thank all the Deputies for their contributions. I have listened intently to all the suggestions and views that have been put forward. There are some areas of difference. Some are quite fundamental to the Government's agreed design. It is fair to say that there has been a broad welcome from all sides of the House for the core idea of auto-enrolment, which is to find a way to provide workers with an additional income in retirement over and above the level of the State pension. I will try to use this opportunity to respond to some of the common issues raised by Deputies during the course of the debate.

The first point I want to make is about the new national automatic enrolment savings authority. I think NAERSA would be the acronym for it. This is a new public body with the statutory remit to manage and operate the auto-enrolment system and to ensure that auto-enrolment participants are cared for and protected. It will manage the funds in accordance with the prudent person principle. It is not the case that participants would be thrown over to the private pensions industry, as some have suggested, or that this would be a gift to the pensions industry. In fact, none of the money will be handed over to pension companies. The new authority will act as a custodian of the best interests of the participants and a buffer between workers and the financial services industry.

While the NTMA could be considered for this, and I certainly gave it consideration, there are a number of reasons this has not been proposed. The NTMA manages State money. It does not have the systems, processes, knowledge or experience to manage individual savings and investment accounts, or to conduct the administration of these over many decades. Accordingly, it would need to either build these or contract for their provision. Giving this task to the NTMA would be to add something very new to its long list of existing functions. The Government is of the view that this is so important it needs to be a dedicated expert function and so has chosen to establish a new body specifically for this purpose. It is important to note the NTMA invests State money in the international stock market and uses commercial investment managers from private industry to do this. This is exactly what the national automatic enrolment retirement savings authority will do with retirement savings.

. We all know that private pensions can be complex and expensive. With the implementation of the new authority, automatic enrolment participants will not have to engage with the commercial pension market at all. They will not have to do this. In fact, they will not have to do anything; the new authority will do it for them. The new authority will also ensure that participants get the best possible value for money because it will be able to use its scale to ensure low fees are paid over time to any contracted service providers that are procured. It is envisaged this scale will result in administration and investment companies competing strongly with each other for the opportunity to support automatic enrolment. Accordingly, it is also envisaged that a basic flat fee on each participant will pay for the services of the authority and investment charges.

The procurement of administration services is at an advanced stage and is moving into the evaluation phase because the bids are now in. The procurement of investment services is at an advanced stage of development and the tender for this will be published in the very near future. I am happy to give further updates as the legislation and tenders progress over the coming weeks and months.

The next point I want to make is about the State pension. I want to say again that the State pension is, and will remain, the bedrock upon which the Irish pension system is founded. This is a cornerstone of our programme for Government commitments, and I have emphasised that many times. I have also said that long life is a blessing and not a burden, and I mean that. Therefore, we need to find ways of properly and adequately supporting long lives.

Let us be clear that automatic enrolment will be an additional source of income in retirement on top of the State pension. It will not replace the State pension or undermine it in any way. This is my absolute commitment. The contributory State pension is not a means-tested payment. The State pension is about ensuring that retired people stay above the poverty line but I want to ensure that we do more for the hard-working people. The necessary and ongoing reforms of the State pension are completely separate to the forward planning that we are doing by introducing automatic enrolment.

The next issue I want to mention is the age and earnings threshold. With respect, I am not convinced that changing these improve the Bill. If I raise them, women, part-time workers and young people could lose out. If I lower them, I would be accused of catapulting people into poverty. I am trying to get the right balance and I think I have achieved it. It is very important to note that the design allows for anyone outside the age and earnings threshold to voluntarily opt in to automatic enrolment so they are not excluded; they are just not automatically included. This is the safeguard many people are looking for. If people choose to opt in the State and employers will be compelled by the legislation to make the contribution also.

The flip side of this is the provision for opt-outs and suspensions where there are affordability issues for those who are automatically enrolled. The strong feedback on this from focus groups during the straw-man public consultation in 2018 was that six-month mandatory participation was a good idea and that opting out should not be made so easy that it would undermine the ultimate purpose of automatic enrolment. Participants will need time to see how beneficial the contributions will be to their savings pot in order to make an informed decision rather than a knee-jerk decision.

We all know there are different phases in our lives. When I was starting out and looking for a deposit to put on a house and get a mortgage, if I could have cashed in my pension pot, I certainly would have done so. However, I could not do so and that will pay off at the end when I reach retirement. There are many other times I would have loved to have cashed it in but I could not get my hands on it and that was a good thing. It is a private pension that I paid into.

I will now turn to the pre-legislative scrutiny by the Joint Committee on Social Protection, Community and Rural Development and the Islands. I thank Deputy Naughten, the chairperson, for consideration given to the general scheme by the committee during that phase. I refute any suggestion that the committee's recommendations were not taken on board. They were listened to very carefully. Quite a number of recommendations were already part of the Government's design and some of them were influential in how the Bill developed during drafting. It really is not as simple as a recommendation being accepted or rejected in its entirety. For example, environmental, social and governance matters are embedded as important concepts in the Bill. It is just formulated in a way that does not interfere with the prospect of good investment returns for savers by being overly prescriptive or by creating excessive risk concentration. These provisions feature strongly in terms of the investment rules applicable to contracted service providers set out in section 74, as well as the obligations of the State under international agreements on environmental sustainability and climate change that must be taken into account under section 75.

The State's obligations with regard to relevant international agreements, although not needing to be specified in the Bill, include the sustainable finance disclosure regulations, the UN Global Compact and the Paris Agreement, which guide the international community on matters such as carbon emissions, fossil fuels and investment in unethical assets such as those relating to the arms industry. I do not think it is appropriate for us, as politicians, to dictate beyond the framework of these international agreements what assets should and should not be invested in because I do not believe this is our job. The new authority will be contracting experts to do this work to the best of their ability. We should leave them to do that work.

It is very important to emphasise that the authority will not be administering a new State fund. This is not State money. Rather, the authority will be administering hundreds of thousands of individual savings accounts that are and will remain the personal property of automatic enrolment participants. The automatic enrolment project is, therefore, a State-incentivised personal retirement savings scheme for individuals rather than a new national fund. We should not forget that.

It is important that we treat automatic enrolment participants' money on a par with that invested in occupational or supplementary private pension schemes, and that we do not force automatic enrolment participants' investments into overly concentrated or niche assets. If the State were to legislate precisely on investment by automatic enrolment participants because it provides a top-up to participant's accounts, then it would be placing automatic enrolment participants at a distinct disadvantage compared to people in occupational and private pensions, which the State also heavily subsidises through tax relief.

On the State top-up, the type of financial incentive to support participation in the AE system has been the subject of extensive and detailed consideration in the development of the design of the AE system. In short, the Government is of the view that all contributions to automatic enrolment should be incentivised equally. We thought seriously about applying normal tax relief, but lower- and middle-income earners would lose out with that approach. In fact, anyone who is not paying tax would receive no State support whatsoever and that would be unfair. We went through this at length over many hours. We deliberated on it and the officials and I felt this was the best and fairest system. Accordingly, the Government decided on the recommendation I brought forward, which was to instead provide a top-up to participants' contributions at a rate of €1 for every €3 contributed by an employee. That is the equivalent of a 25% tax relief across the board. This is a unique feature of automatic enrolment and it is designed with those to whom it will apply in mind. While some may claim that a person who pays income tax at 40% will lose out under AE, that would only be the case if they had a viable and equal alternative available to them that included all of the attributes of AE, such as mandatory employer support.

The reason we are setting up automatic enrolment is that huge numbers of such people do not have that equal and viable alternative. I know that issues were raised regarding maternity leave. For people who are non-earners, it will be based on income from payroll at the start. That is the way the system will be at the start. However, I absolutely agree with Deputy Denis Naughten and I thought, as he did, about women who take out when they go on maternity leave. As it is payroll-based at the start, it is my intention that they will be included, but I just want to get this started and then we can expand it further as quickly as possible.

I want to acknowledge the work done by my officials. This is a massive body of work. The late Séamus Brennan started this 25 years ago and it is at this stage now. I want to try to move it on and not delay it. These are competitive. The tax treatment will be like the PRSAs. The Minister for Finance will bring this through the Finance Bill in 2024. I will give that commitment now that the tax treatment will be the same as PRSAs, but that it will be done through the Finance Bill.

Some Members asked about what information the participants would get. While we will not be giving them advice, they will get information about what decisions to make. The authority will keep them safe through a default fund while they are saving. There will be three funds here and they will depend on what a person may want; a person may want to go for low-risk, medium-risk or high-risk. For those who opt for low-risk, it is possible that it will mean a higher element in cash. This may mean that the people who go for low-risk will be those who are getting closer to retirement. If you are young and if you start off early, you can probably go for high-risk. There will then be a chance to move into a lower-risk fund as you head towards retirement. They will have the opportunity to get the information. Down the road, there may be an opportunity for us to provide retirement benefits, investments or pensions at the end of a person's years of saving. Yet, as I said, that is down the road.

The other issue that was asked about was the opt-out. The opt-out rate in the UK is very low; it is less than 10%. In New Zealand, currently, approximately 4% of people are taking a savings break. We have built into this an option to stop saving if you need to for whatever life event may occur. We can allow that. Therefore, there are levels of flexibility built into this particular scheme.

Deputy Connolly mentioned the alternative AE proposal that came forward. I arranged an in-depth consideration of this proposal. My officials and the independent body, the Pensions Council, looked closely at it. I know the proposal sounds great. It would supposedly double the investment returns for automatic enrolment participants. Who, of course, would not want that? However, the fact is there are many unanswered questions about whether the proposal could work in practice. The Pensions Council is an independent body of experts who are drawn from the legal and financial world. Its role is to advise me on what it understands to be the best way forward to provide a pensions landscape in Ireland that works best for the consumer. While the council acknowledged that it is an interesting idea, it ultimately could not recommend it to me as a better alternative to the auto-enrolment design that had already been agreed. The council found several shortcomings with regard to the technical and practical feasibility of the proposal, as well as a lack of supporting evidence for it. I do not think it would allow the same degree of flexibility we are trying to build into this scheme.

I, as Minister, cannot foist an untested and unproven theory on automatic enrolment participants. I cannot and should not be taking risks with people's money with an unproven approach and against the advice of the Pensions Council. Even if the alternative proposal were to be risk-free - and is there such a thing as risk-free? - it would allow no flexibility whatsoever for participants. It would lock them into permanent participation with no option to suspend or opt out. I could not recommend that particular approach to the House.

Finally, future retirees will face an unwanted drop in their standard of living if we do not act on their behalf. For many people, retirement seems to be a long way away. They think they have a lot of time before they need to think about a pension, but I can tell you that it creeps up very quickly. They think that the process of putting a little aside each week to provide for the retirement years is something to be considered next year. They will then put it off until the year after because people think there is never a good time to start a pension and that there is always another competing priority. The truth is that the best time to start saving for a pension is always now.

Despite the significant State incentive that already exists in the form of tax relief on pension contributions, according to figures from the Central Statistics Office, the rate of supplementary pension coverage is approximately 56% of the working population. It is estimated that this figure may be as low as 35% when the private sector is considered in isolation. That means that we and the pensions industry are failing to attract people to save towards their retirement. Auto-enrolment will reverse that long-standing trend and I encourage Deputies to support this radical change. It is long awaited and, as I said earlier, it has taken us 25 years to get to this point. I acknowledge those who have gone before me in this Department for the work they put into this, but those 800,000 workers cannot wait any longer. I will take the advice given by Deputy Varadkar, who said that time is not on our side. At long last, we now have the opportunity to make a difference for those 800,000 people. Hopefully, as time goes on, more and more people will enjoy it, but those 800,000 people need us to act now.

6:00 pm

Photo of Mattie McGrathMattie McGrath (Tipperary, Independent)
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Question put.

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Kildare South, Ceann Comhairle)
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The vote will be deferred until the weekly division time. We cannot have the weekly division time until 7.30 p.m., so the House will stand suspended for 20 minutes.

Sitting suspended at 7.10 p.m. and resumed at 7.31 p.m.