Heather Humphreys (Cavan-Monaghan, Fine Gael)
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The introduction of an automatic enrolment (AE) retirement savings system is a Programme for Government commitment and a key priority for me as the Minister for Social Protection. Implementation of the AE system is well underway, with the Automatic Enrolment Retirement Savings System Bill 2024 now published and a tender process to contract for administration services well advanced. Enrolment of the first participants is expected to commence in January 2025.

Implementation of the AE system will require additional resources in the form of the costs of the State top-up and may require resources for potential set up costs for the National Automatic Enrolment Retirement Savings Authority, which is being established to maintain and administer the AE retirement savings system on behalf of its participants.

Under the final design principles of the AE system, the State will make a contribution to participant’s retirement savings funds at a rate of €1 for every €3 saved by the employee. Initially, contributions will be set at a rate of 1.5% of a worker’s annual gross income for both employee and employer. The contribution rates will then auto-escalate every three years by 1.5 percentage points, until reaching the maximum contribution rate of 6% from Year 10 onwards. Therefore, during the first three years of the system’s operation, while the employees’ contribution would be set at 1.5% of their gross earnings, the State’s contribution would be equivalent to 0.5%.

In estimating the costs of the State contribution, it is assumed that 90% of enrollees will remain enrolled in the scheme. The full year cost of the State top-up is then estimated to be €138 million in 2025. By Year 10, when the full contribution rates are phased in, the full annual cost is estimated to be €760 million.

While the cost of incentivising AE appears to be significant, it represents an investment in retirement savings in order to safeguard the standard of living of the retired population in the future. Accordingly, it is expected that the investment made now will be returned to the economy in higher levels of expenditure by retired people in the future. Furthermore, by way of comparison, the estimated cost of the existing marginal tax relief on occupational pensions was approx. €1.8 billion in 2020, which largely benefits higher rate income taxpayers. If tax relief were used instead of a State top-up, Department of Finance figures indicate that the cost of extending the existing tax relief system to the target AE cohort would amount to approx. €750 million per year from Year 10 onwards, which includes tax relief on employer contributions of approx. €200 million. (This is based on 2020 data and the Year 10 calculations do not take account of any typical inflators).

With regard to the costs associated with the operation of the National Automatic Enrolment Retirement Savings Authority, the intention here is for the Authority to become self-financing from fees charged to the participants. However, as costs will arise in advance of contribution collection commencing, it is expected that the costs of setting up the Authority itself will be financed from a loan to be amortised as part of its operating costs over the following 10 to 15 years. Thereafter, it is expected that the Authority should be self-financing, requiring no funding from the Exchequer.

I hope that this clarifies matters for the Deputy.

Bríd Smith (Dublin South Central, People Before Profit Alliance)
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457. To ask the Minister for Employment Affairs and Social Protection the reason the Automatic Enrolment Retirement Savings System Bill 2024 (No.22 of 2024) has ignored the Joint Oireachtas Committee on Social Protection, Community and Rural Development and the Islands' pre-legislative scrutiny recommendation number 15, which states that the investment funds be prohibited from investing in fossil fuels or the arms industry (details supplied); and if she will make a statement on the matter. [16047/24]

Heather Humphreys (Cavan-Monaghan, Fine Gael)
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The introduction of an automatic enrolment (AE) retirement savings system is a Programme for Government commitment and a key priority for me as Minister for Social Protection. Implementation of the AE system is well underway, with the Automatic Enrolment Retirement Savings System Bill 2024 now published and a tender process to contract for administration services being well advanced. Enrolment of the first participants is expected to commence in January 2025.

I am aware that the report of the Joint Oireachtas Committee (JOC) on Social Protection on its pre-legislative scrutiny of the Heads of Bill to establish the AE system set out 21 observations and recommendations and that among them are some relating to environmental concerns and the arms industry.

To manage and administer the AE system, a new body, the National Automatic Enrolment Retirement Savings Authority (NAERSA) will be established. It will openly procure investment management services on behalf of AE participants. In this regard, it is important to note that the Bill does indeed provide for environmental, social and governance (ESG) concerns such as those highlighted by the JOC. They feature in terms of the investment rules applicable to contracted service providers set out in Section 74 and 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 specified in the Bill, would include the Sustainable Finance Disclosure Regulation, the UN Global Compact and the Paris Agreement. The inclusion of these measures will therefore ensure that ESG concerns are well represented in the AE system.

I want to make it clear to the Deputy that the NAERSA will not be administering a new State fund, but rather will be administering hundreds of thousands of individual savings accounts that are, and will remain, the personal property of the AE participants. The AE project is, in that sense, a State-incentivised personal retirement savings scheme for individuals rather than a new national fund. In that context, it is important that we treat AE participants' money on a par with those invested in occupational or supplementary private pension schemes and that we do not force AE participants' investments into overly concentrated or niche risk profiles. To safeguard against this, the legislation also provides for a set of investment rules that at a high level include the ‘prudent person principle' that already applies to other pension schemes as regulated by the Pensions Act and the IORP II Directive.

I hope this clarifies matters for the Deputy.