Heather Humphreys (Cavan-Monaghan, Fine Gael) | Oireachtas source

I thank the Senators for their contributions. I will address the issues that have been raised in the time I have. Senator Burke asked about a review of the Bill. Section 43 provides for a detailed review every five years. He and Senator McDowell both raised the issue of the cost to employers. This scheme will be brought in gradually over ten years and the 6% will not kick in until ten years have passed. Gradually, we are going to increase contributions. In the first year, it will be 1.5% of gross wages. That will be the percentage of the employee's contribution and the employer's contribution, and the State will top it up. This scheme is being brought in gradually because we want to give employers sight of their commitments on contributions. We have done it in that way. As I said, it will be phased in over a ten-year period, which should help employers to absorb remuneration costs. Contributions will be levied on the employee's salary to a cap of €80,000. The design of the employer contribution has been informed by a lengthy consultation and development process, including considerable engagement with industry bodies, employer and employee representatives and advocacy groups, including representatives of small and medium enterprises, as well as members of the public. It was as a result of those consultations, and in response to the concerns of employers, that we decided to elongate the phasing-in of the contribution rates. Auto-enrolment, AE, is a positive thing for many employers because the availability of an occupational pension in a place of employment can be a draw for talented workers. It is enhancing the benefits on offer to attract people to come and work for employers. We are in a very tight labour market at the moment, as we know.

The issue of the minimum age of 23 was raised by Senator Sherlock. We looked in detail at that provision. Ireland has one of the highest levels of participation in third level education among OECD countries. The number remaining in education in their early 20s has increased, delaying their joining the job market. Some 75% of those aged between 16 and 22 are in full-time education. Young people who do not take up employment are proportionately more likely to be situated at the lower end of the earnings distribution, lower than the AE income threshold. According to PRSI data, only 30,000 people under the age of 23 earn over €20,000, which equates to approximately 7.5% of the total population of 16- to 22-year-olds and less than 5% of the total AE population.

The earnings threshold of €20,000 was also raised. The provisions for eligibility for automatic enrolment are set out in section 50(3), which retains the income threshold at €20,000. The rationale is to balance the need to save for retirement against current financial pressures. Evidence from other jurisdictions shows that automatically enrolling people below certain thresholds can result in over-saving to the detriment of their current needs, which can lead to poverty issues for some people. When I worked in financial services, I met a lady who was insistent that she pay a life policy every month. She sacrificed everything to pay that life policy. She was overstretched in her commitments and it left her in very poor circumstances. I tried to convince her that she would be better off cancelling it but she insisted on paying and it put her under awful pressure. We do not want to put people under unnecessary pressure. People earning less than the €20,000 threshold can opt in. If they do so, their employer has to match the contribution and the State will top it up.We do have that flexibility in it.

The protections for employees, including the referral of an offence to the WRC and the commission, were also raised with me. Those protections are contained in sections 127 to 129, inclusive.

We looked at the prohibition on employers winding up their occupational pension schemes and found no evidence that such a scenario has occurred following the implementation of AE-type systems in other jurisdictions. In the UK, despite significant concerns that AE would result in the levelling down of existing pension arrangements, what came to pass was that many employers decided to improve their existing pension plans by contributing more than the minimum contribution rates. They saw such an offering as helping with the recruitment and retention of good employees. In a tight labour market, a good pension offering is a way for an employer to attract and retain talent.

Regarding the standards for exempt employments before the end of year three, the AE Bill sets out very clear instructions when it comes to contribution levels. They are always based on gross earnings, matched by the employer and topped up by the State. We need this to bed in before we start to set out these things. I know the Senator might think that is straightforward, but we feel we need to wait until the contribution has increased to closer to 5%, which is the average on other pension schemes. We want to do that and then we will start to look at the standards.

There are other things we need to look at as well, such as the supplementary benefits that are provided by some pension schemes, which may not be provided by AE. There are some people whose deductions or contributions are based on the net amount going into the person's pension. AE is based on the gross amount. There are a number of things to tease out there. We want to let it bed in for a number of years before we start to set out those standards. On the legal advice, we will come back to the Senator on that issue. It has not been finalised yet so we have sought legal advice. Preliminary advice says that we cannot do that, but we will get the final advice and provide that to the Senator.

I remind Senator Warfield that automatic enrolment has nothing to do with the private pensions industry. I acknowledge the Senator's suggestion that we should use the NTMA. I asked the same question. When we teased it out, we decided it was right to set up a separate independent agency to deal with this. The NTMA, as we know, invests State money, as opposed to private money, and it does so with the assistance of investment managers from the private industry. If the NTMA were used to invest AE money, it would do it by engaging with commercial investment managers, which is exactly the same as is proposed for the new State body, NAERSA. Given that so many people will be participating in this scheme - we estimate that the figure will be approximately 800,000 - the Senator can imagine that the processing of these funds will be a huge endeavour. That is why we felt it was important to set up NAERSA as an independent body to do all of that processing. It will have the expertise and skill set to invest.

Regarding the investments themselves, I know Senator McDowell mentioned the proposals made by Colm Fagan. I arranged for an in-depth consideration of this proposal. My own officials, as well as the independent Pensions Council, looked very closely at it. The proposal sounds good - it supposedly doubles the investment returns for AE participants, which, of course, anybody would want - but the fact is that there are many unanswered questions about whether it could work in practice. The Pensions Council is an independent body of experts drawn from the legal and financial world. Its role is to advise me on what it understands to be the best way forward in terms of providing a pension landscape in Ireland that works best for the consumer. While the council acknowledged it was an interesting idea, it ultimately could not recommend it to me as a better alternative to the already agreed automatic enrolment design. The council has found several shortcomings regarding the technical and practical feasibility of the proposal and a lack of supporting evidence for it. As Minister, I could not foist an untested and unproven theory on AE participants. I cannot take risks with people's money on an unproven approach against the advice of the Pensions Council. Even if the alternative proposal were risk-free - as we all know, it is doubtful that anything is risk-free - it allows no flexibility for participants. It locks them into permanent participation with no option to suspend or opt out. What we are proposing is that everybody has their own account, but there will be three funds - high-risk, medium-risk and low-risk - and people can decide. It will probably depend on their age, at what age they go into it at, and whether they want to go for the low or the high. They can decide on that themselves. If they cannot decide or if they do not want to make that decision, we will put them into a default fund. It is important to say that contrary to what has been suggested, it will not be a separate or individual fund for everybody. That is not the way it works. Everybody will be pooled, depending on which option they go for, into the low-risk, medium-risk or high-risk fund. Whatever the return from that fund is, it will then be distributed to the members of that particular type of fund.

I would like to mention a case I came across during the period of the special savings incentive account, SSIA. It is important to me that everybody is treated equally regardless of whether they decide to go for low-risk, medium-risk or high-risk. During the SSIAs, which were very successful, I saw that some people decided to go for equities and ended up with a return that was much lower than if they had gone for a different savings approach. It may not have worked out or have been there long enough. All sorts of things can happen with investments, as we know. Some people chose one company, while some people chose another. One did well, while another did badly. Regardless of whether one chooses a low-risk, medium-risk or high-risk fund, it is important that whatever the return is, everyone will get the same return based on their contribution into the fund. The Bill is not proposing any changes to tax or USC-----