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

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.

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