I welcome the Minister and thank her for coming to the House take this important debate.
Automatic Enrolment Retirement Savings System Bill 2024: Second Stage
Question proposed: "That the Bill be now read a Second Time."
It is a pleasure to be able to bring this Bill before Seanad Éireann. I have been very encouraged by the support it has received from across the political spectrum and from stakeholders. Auto-enrolment, AE, has been talked about for more than 25 years in this country. There was a major straw man public consultation on it in 2018. This was followed by a series of Government decisions between 2019 and this year that settled the design of the system. Last week, the Bill was passed by Dáil Eireann with no changes to the overarching design. This truly is an idea that has met its time. Senators now have the opportunity to push forward with this historic reform of the Irish pensions landscape.
Enactment of this Bill will pave the way for approximately 800,000 workers to be brought into a retirement savings scheme for the first time. Implementation of AE is needed because both pension coverage and pension adequacy, particularly in the private sector, are too low. It is estimated that only one third of private sector workers are actively contributing to pension schemes. Such a low level of pension coverage is not acceptable.
As I have stated here many times previously, the State pension is, and will remain, the bedrock upon which the Irish pension system is founded. This is the policy intent of this Government and it is a view that I know is shared across the House. However, the State pension is about ensuring that retired people stay above the poverty line. To ensure that workers can maintain an adequate standard of living in their retirement, individuals require additional savings beyond the State pension. While some employers provide occupational pension plans and other retirement savings arrangements for their employees, there is a large gap in retirement savings that this Bill seeks to address. The goal then of AE is to increase pension coverage and pension adequacy in Ireland.
Before going through the Bill section by section, I wish to refer to some of the issues that were raised in the Dáil debates and elsewhere, as I expect some of them could arise here. First, on the issue of allowing AE participants to opt out of the scheme, an initial six-month period of mandatory participation was chosen because the period needs to be sufficiently long in order that participants can see a rise in the value of their fund as contributions are made each pay period. I also believe that when they see this, they will not want to opt out. If the period was shortened or eliminated and participants had a wider range of opportunities to opt out, it would risk defeating the underlying policy objective of providing a better retirement outcome for members. It would be too tempting for people to put off saving for their future.
On the issue of the National Treasury Management Agency, NTMA, possibly managing the investments of participants, the reason for this suggestion appears to be a desire to somehow keep participants' money away from the services of the private market. However, this proposal is based on a misunderstanding because that would not be achieved by involving the NTMA. The NTMA invests State money, not private money. It does so with the assistance of commercial investment managers from private industry. Therefore, if the NTMA was used to invest AE money, it would do it by engaging with commercial investment managers, exactly the same as is proposed for the new State body, the national automatic enrolment retirement savings authority, NAERSA. Accordingly, using the NTMA for investment would make no difference to AE participants or provide them with any greater protections.
It is also important to note that the NTMA has no experience or systems to administer the hundreds of thousands of private accounts holding people's personal money. Accordingly, it would need to acquire or develop such systems and capabilities to take on this role. That is why a new State body, NAERSA, is being established to manage the AE system. It is my view that AE is so important that a body focused solely on achieving the best outcomes for participants is needed. Moreover, NAERSA will be a custodian for participants' money, acting in their best interests, and providing a buffer between them and the complicated pensions market.
I will now provide a quick overview of the Bill. It provides for a new, highly automated retirement savings system that will automatically enrol workers based on payroll data. Initially, employees aged between 23 and 60 years of age who earn over €20,000 per year across all employments, and who are not already paying into a pension scheme in respect of any of those employments, will be enrolled. Participants will be allowed to opt out or suspend their contributions after a mandatory six-month participation period. They will be brought back into the system again after two years unless they have an alternative pension arrangement.
I have listened to the concerns of businesses and for that reason contribution rates will be phased in gradually over a period of ten years. Starting in 2025, employees will contribute 1.5% of their gross earnings, which will be matched by their employers, and topped up by the State. These rates will gradually increase every three years until reaching a maximum contribution rate of 6% per employee and 6% per employer, plus 2% from the State from 2034 onwards. This steady phasing-in allows time for employers to budget and plan and for employees to adjust to the new system.
In order to encourage workers to participate, people who choose to remain in the system will have their pension savings matched on a one-for-one basis by the employer. The State will also provide a top-up of €1 for every €3 saved by the worker. This means that for every €3 saved by the employee, a further €4 will be invested by the employer and the State combined, resulting in a total saving of €7.
The Bill provides for the establishment of NAERSA, which will collect contributions, arrange for the investment of contributions, manage participant accounts that will be accessible through an online portal, and facilitate the payment of savings at retirement.
Before I go through the Bill in detail, I want to mention to Senators that I will be tabling a number of technical amendments on Committee Stage that have been identified by the Office of the Parliamentary Counsel as enhancements to the clarity and coherence of the Bill overall. None of these is policy related or represents substantive change to the agreed design of AE, but I just need to flag them in advance.
I will now go through the Bill by section. Sections 1 to 5 provide for the Bill's Short Title and commencement, the definition of common terms, the making of regulations for the purposes of this Bill, provisions in relation to the serving of documents and deals with the expenses incurred in the administration of this Bill.
Sections 6 to 9 set out the definitions for Part 2, the establishment day provisions, the creation on establishment day of a body to be known in English as the National Automatic Enrolment Retirement Savings Authority and the principal functions of this new authority. Section 9 also outlines that the authority shall be independent in the performance of its functions and that it operates in the best interests of participants.
Sections 10 to 21 provide for the arrangements for the board of the new authority. These provisions include the number of board members, the term of office, the conditions of membership of the board, how individuals become ineligible or disqualified as members, arrangements for the removal of board members, meeting arrangements, arrangements for the working of various committees of the board, and for the remuneration and expenses of board members and committee members.
Sections 22 to 24 set out provisions in relation to the disclosure of material interests and non-disclosure of confidential information. Sections 25 to 29 provide for the appointment process for the chief executive, for the functions of the chief executive, for his or her accountability to the board, for the delegation of certain functions by the chief executive to a member of staff of the authority, for the circumstances where a person becomes disqualified from being chief executive, and for the arrangements for the removal of the chief executive.
Section 30 provides for the staffing of the authority. Sections 31 and 32 provide for the appointment and engagement of consultants and advisers and the engagement of the services of any service provider.
Section 33 provides for the chief executive to be accountable on relevant matters to the Committee of Public Accounts, while section 34 sets out the arrangements for the chief executive, or an employee of the authority nominated by the chief executive, to attend before an Oireachtas committee.
Section 35 provides for the setting of fees payable to the authority for administrative costs and investment management services, while section 36 provides the authority with the power to borrow money. Sections 37 and 38 provide the arrangements for the authority to prepare a strategy statement every three years and a plan on an annual basis. Section 39 requires the authority to keep proper annual accounts and to submit such accounts for audit by the Comptroller and Auditor General.
Section 40 provides for the submission of an annual report on the performance of the principal activities of the authority, while section 41 provides for the submission of further reports that the Minister may consider appropriate to any particular matter relating to the functions of the authority.
Section 42 requires the authority to publish statistical data relating to participation in the AE system, to the types of investments held by AE provider schemes, and other statistical information as may be prescribed, while section 43 provides for the authority to monitor and review the operation and effectiveness of the AE system.
Sections 44 to 46 provide for the Pensions Authority's supervision of the authority. This includes the submission of a supervisory report and the payment of an annual fee for the cost of conducting this supervisory report.
Section 47 provides for the definition of a number of relevant terms used in Part 3, which relates to enrolment and contributions. Section 48 addresses what should happen in the event of the death of an employer with regard to the enrolment of employees and contributions.
Section 49 provides that a person becomes a participant on the enrolment date assigned to that person, while section 50 provides for the eligibility conditions under which a participant will be automatically enrolled. These include the age threshold of 23 years of age and the earnings threshold of €20,000 a year.
Section 51 defines 'exempt employment' as that which is already covered by an existing pension scheme. Section 52 sets out the arrangements regarding standards for existing schemes that would continue to render an employment exempt. It also provides that the authority, in consultation with the Pensions Authority, will draw up these standards by the end of year six of operations at the latest. It does not preclude the standards being brought forward earlier.
Section 53 provides for those who are not participants to have a right to opt in to the system, should they wish to do so and under certain conditions, while section 54 provides participants with the right to opt out, under a given set of circumstances.
Section 55 sets out the requirement for the authority to automatically re-enrol individuals who opt out, should they continue to satisfy the conditions for re-enrolment, after two years. Section 56 provides for the amendment of the age limits and earnings thresholds through regulations.
Section 57 defines that a participant who is under pensionable age is a contributing participant. Sections 58 to 61 provide for the payment of the participant, employer, and State contributions to the authority at the appropriate rate, as set out in section 61.
Section 62 sets out the arrangements for the suspension of contributions. It provides that the period of suspension may begin not less than six months after enrolment, or re-enrolment, and not less than six months after the end of any earlier period of suspension.
Sections 63 and 64 provide for the authority to repay contributions in certain circumstances, including the participant's own contributions when they have opted out. Section 65 provides for the Minister to prescribe a different upper earnings threshold.
Section 66 provides for regulations to be made by the Minister on a range of technical matters on the operation of the enrolment and contributions part of the Bill. Section 67 provides for the definition of terms in Part 4 relating to the investment of contributions.
Section 68 sets out the arrangements for the authority to appoint investment management service providers, with section 69 requiring each investment management provider to provide three funds, each of which must be aligned to a risk rating, ranging from higher to medium to lower risk. These risk ratings will be provided for through ministerial regulation, which will have regard to any existing scales or methodologies on risk and any custom and practice that takes into account climate-related risks.
Section 70 sets out how participants' contributions are assigned to the funds with the appropriate risk level. Where a participant chooses a fund type, they are assigned to the funds with that risk level. Where a participant does not make a choice, they are placed according to the default strategy in the appropriate fund type based on their age.
Section 71 provides the Minister with the power to make regulations allowing for investment to be split across funds of different risk levels. Sections 72 to 74 set out the arrangements for the management of participants' contributions and the investment rules to be observed by investment managers.
Section 75 specifies the requirement that contracts with investment management providers must contain provisions relating to environmental, social and governance matters. Section 76 requires the authority to keep an account for each participant.
Section 77 amends the Investment Intermediaries Act 1995 to exclude the authority from its scope. Section 78 sets out the definitions for Part 5 payments out of accounts. Section 79 sets out the processes for notifying the authority of the deaths of participants.
Section 80 gives the Minister the power to make regulations to provide for the transfer of participant moneys to retirement savings products such as an annuity or an approved retirement fund. Sections 81 to 84 set out the process for the redemption of a participant's investment holdings, the process for payment to a participant at or after pensionable age and the process for payment in the event of the death of a participant.
Sections 85 to 88 set out the process for applying for early access to funds in the event that a participant retires through incapacity or in exceptional circumstances of ill health, and for the redemption of their savings. Sections 89 to 99 set out the necessary provisions for the application of the Dormant Accounts Act to savings in the auto-enrolment system.
Sections 100 to 104 contain the legislative provisions for the authority to provide communications and services by electronic means to participants on a default basis and by other means where requested. Section 105 sets out the form and content of the annual statements to be provided to participants and aligns these provisions with the arrangements for current pension schemes.
Section 106 provides for the application of the Freedom of Information Act 2014 to the authority. Sections 107 and 108 contain the legislative provisions relating to the sharing of information between the authority and a specified body as well as with the service providers that the authority will procure for the administration and investment services.
Section 109 makes provision for the disclosure of certain information to the Minister for Enterprise, Trade and Employment or the Workplace Relations Commission under certain conditions. Section 110 provides for amendments to the Social Welfare Consolidation Act 2005, relating to the sharing of information.
Section 111 provides for the processing of personal data and special categories of personal data in line with the general data protection regulation and the Data Protection Act 2018, while section 112 provides that the Minister may prescribe, by regulations, a number of specific processes relating to data protection.
Sections 113 to 119, inclusive, provide for the arrangements for reviews and appeals to a range of determinations by the authority in certain cases. Those seeking further appeal have recourse to the High Court on a point of law or to the Financial Services and Pensions Ombudsman, FSPO.
Sections 120 to 124, inclusive, set out the arrangements for compliance and enforcement, including the appointment and powers of authorised officers, and the issuing of compliance notices and fixed payment notices.
Section 125 provides for the protection of legal privilege.
Section 126 allows the authority to maintain a list of persons on whom a fine or other penalty has been imposed by a court.
Sections 127 to 130, inclusive, set out provisions to protect employees from penalisation or from being hindered in participating in the auto-enrolment system, including by having recourse the Workplace Relations Commission.
Sections 131 to 137, inclusive, set out the provisions concerning offences committed in contravention of the Bill.
Sections 138 to 141, inclusive, set out certain miscellaneous provisions, including the formula for calculating interest on unpaid contributions, how the authority may apply for a court order for an employer or employee to pay arrears of contributions, as the case may be, and other provisions regarding moneys owed to the authority.
I thank Senators for their patience. I strongly believe automatic enrolment will be a transformative scheme for our people. When implemented, this new system will enable hard-working people to build retirement savings they can enjoy on top of the State pension in old age. I have tried my best to get the right balance in this Bill between affordability for employees and for employers and the overarching need to ensure pension coverage and adequacy is greatly improved in this country. The gradual easing in of contribution rates over ten years as well as the earnings threshold are key to this balance. For employers, these labour costs can be gradually absorbed and planned for. Moreover, most employers will be spared any real administrative burden because the new authority will do all the heavy lifting. Therefore, for employers with existing pension scheme offerings, automatic enrolment will not feel like a second pension scheme as the work will be done for them.
The introduction of automatic enrolment has been a key priority for me since my appointment as Minister for Social Protection and I am delighted to finally bring this Bill before the Seanad this evening. I respectfully ask Senators to lend it their full support.
With that, I commend the Bill to the House.
I welcome the Minister to the House. This is probably one of the most important pieces of legislation we will pass in this House for many years. We are dealing with ordinary people's money going forward and we are going to make provision for people who will be retiring in the next 30 to 40 years and way beyond. This is, therefore, hugely important.
The preamble in the explanatory memorandum sums it up well. It states:
This Bill is designed to give legislative effect to the establishment of an automatic enrolment retirement savings system for employees in employment not covered by qualifying schemes. It also provides for the establishment of a new State body ... which will administer the system for and on behalf of the participants. The Bill will also provide for the automatic enrolment and re-enrolment of participants in that system and for opting into and out of the system. In addition, the Bill provides for the payment of contributions by participants, their employers and the State, the investment of contributions and the payment of retirement savings out of participants’ accounts when they reach State Pension age.
Therefore, there are three sections involved. Employers, employees and the State are all paying into this. We are making provision for the next 30 to 40 years for people who will be retiring in that time. They will get a pension based on what they have paid in on top of the State pension, which, as the Minister said, will be the bedrock. This will be in addition to that.
The Minister is setting up a new board to run this investment on behalf of the people - the employees - who are paying in. Of course, the State and the employers are paying in as well. There is going to be a huge responsibility on the board to account and make good investments on behalf of people for the next 30 and 40 years and beyond. We are going to be judged after 30 or 40 years as to whether we have introduced a very good Bill or whether we did not do our work properly. It is, therefore, hugely important that this is got right in the first place.
I believe this is a very good Bill. As the Minister said, this has been talked about for the past 25 years and she is now bringing it forward. The Bill has been tweaked here and there and amended and added to and so forth. We have heard over the past couple of weeks from a number of commentators on the national airwaves. Mr. Colm Fagan and Mr. Paul Kenny contributed to programmes in that regard. They said the Minister could have done a better job, or a better job could be done, or a different system of investing people's money would have bigger gains for people with pensions in 30 or 40 years' time. I wonder about what they said or whether there is a different system that would be better. Of course, everybody would like to get more money when they retire. However, it would seem they are proposing that the Government would invest all the money in equities. That was my read of the contributions they made. As we know, equities go up and down, but I presume what they are saying is that, on balance, over 30 or 40 years over the lifetime of a person working, it would even out. That would be taking a gamble with people's money. People are paying in. The State and employers are paying in. It is all hard-earned money from people who want to do the best they can and have the most they can to enjoy retirement. There is a big gamble involved.
I believe the Minister has a good Bill in what she is doing. They system they are proposing has not been tested anywhere in the world. I do not know whether there are any reviews built into the Bill whereby we would have a review after five or ten years to see how investments are going and how the pension pots are doing. Could we carry out such a review? What would it tell us after five or ten years? Would it be good to have a review in it? It may well be, and I think it would be, to see what the potential pensions would be for people going forward and how their savings over five or ten years have progressed.
I welcome the Bill very much. It is a step in the right direction. We heard recently about the UK state pension. As we know, many people here do not get the full State pension because for one reason or another, they were in poor employment that was not paying their contributions when they thought they were being paid and they ended up with a limited or reduced pension. I have seen in the UK that people can buy back anything up to 16 or 17 years to complement the state pension they would be getting already or to try to bring it up to the maximum state pension. I do not think there is any such system here. The Minister might qualify that. It would be a good idea if we had something similar because there are people who are getting a very reduced pension. In most cases, to make additions to their pension, people have to have all of this done before the age of 66 before they retire. Some of those people would be more than retirement age now. It is an area the Minister could look at. The English system is very generous in that it can go back maybe 17 years.
All in all, I welcome the Bill the Minister has brought forward. We will get a better chance to delve into some of the areas I mentioned on Committee Stage. In the meantime, however, the Minister might come back to us and tell us whether we can have a review after five or ten years or whatever, and we will move forward from there.
I welcome the scheme. It is a very good step forward. People may not realise how good it will be until they retire.
I have another query. The Minister said, "In order to encourage workers to participate, people who choose to remain in the system will have their pension savings matched on a one-for-one basis by the employer." For every €1 the employee puts in, the employer will put in another. Is that up to a certain amount? The one thing employers want is certainty. If employees put in more and more, there will be a big burden on employers to match it. I presume that employers who do not match it would be breaking the law. That is an area we will have to spell out to employers because, as I said, they like certainty. When they take somebody on, they want to know how much all the different contributions they have to make will be. As I said, some people could afford to pay in more than others, especially at different times of the year or in different years. There is scope in the Bill to do that so that as people move on in life, they can pay more and more into the system and will not be at a set rate the whole way through. I presume they can add more to it as they go along. Maybe the Minister will clarify that.
I welcome the Bill. I wish the Minister well with it.
I welcome the Minister to the Chamber. I welcome the Bill. I recall that in late 2007, when I was a new official in SIPTU, I met the then Minister, Mary Hanafin, just after the launch of the Green Paper on auto-enrolment. It is sad to think that it has taken 17 years to get to this point, but it is a point we welcome nonetheless. It is important to say that it has been 17 missed years of pension contributions that many workers will not have made, or more than 40% of their working lives.
It is important to say that we have already heard, and will hear over future months, a lot of, as we say at home, clamhsáning or complaining from certain employers and representative groups with regard to the introduction of auto-enrolment. The crucial point to be made is they have had years to prepare for this. In fact, they have got away for years with not having to engage with auto-enrolment because of the delays in the legislative system. That is something employer representative groups must be reminded of when this issue comes up. The Bill is long overdue and absolutely necessary. I am very glad this legislation has now been brought forward. I acknowledge that since the straw man proposal was published in 2018, there have been what I consider to be important improvements to the central processing authority, the filtering of money through that authority, and the capping of management fees, which is an improvement on what we saw in 2018.
In the current context, the large and growing gap in pension coverage in this country means that auto-enrolment has never been more important. The overall figures for pension coverage indicating that just under half of all workers do not have an occupational pension is slightly flattered by the degree to which public sector workers have access to an occupational pension. However, it is important to say that not all public sector workers have that access. I understand approximately 90% of public sector workers have access to an occupational pension so, by definition, 10% do not and are solely reliant on the State pension or a personal pension. When we look at the private sector that rate is about 35%. This is an issue for private sector workers and, in particular, women workers and low-paid workers. The gender pension gap in this country is approximately 35% or probably higher across a number of sectors. While this is an issue mainly for low-paid workers and women workers, it is increasingly becoming an issue for middle-income workers. We see rents eating up so much of people's incomes. We also see that many more people are renting post retirement. The spare capacity to allocate to a personal retirement savings account, PRSA, especially for middle-income workers, is becoming less and less. That opportunity is far less.
I very much welcome auto-enrolment, but I will also record some very serious concerns about what we have before us. The first regards the minimum age of 23. It makes no sense to me. It is out of kilter with the minimum age of 16 for PRSI. It indicates a rather paternalistic view of when people start their "real job" and, crucially, represents wasted years when contributions could have been made.
The second key concern is the earnings threshold of €20,000. There is a wider issue here about what the Government is or is not doing to deal with the low-paid wage trap in this country. I take the view, as do many on the left and in the trade union movement, that in the first instance the changes to PRSI we will see with regard to thresholds, which is of course separate from the pensions issue, will keep low-paid workers trapped in low pay. We see across some sectors employers targeting the lower PRSI threshold for payroll purposes. It is obviously financially better for them to keep workers on less hours and lower pay in order to pay the lower rate of PRSI. The announcement in recent weeks by the Government on PRSI is disappointing because it means those workers will be kept trapped below a certain level of pay. What is contained in the Bill will exacerbate that. We will have certain employers who will keep workers below that €20,000 threshold, or wherever the threshold will be in future, in order to get out of having to pay that employer contribution. I note that there is an opt-in for workers on less than €20,000 but I have to ask - maybe it is in the Bill and I hope it is - for specific employee protections for those workers who want to opt in. On the face of it, if a worker earning below €20,000 goes to his or her employer and asks to be opted in, it can only be imagined how that conversation will play out. There is a very real risk that employees will be very much dissuaded from and intimidated out of opting in.
When so much time has been spent over the past number of years talking about the gender pay gap, it is not credible to continue wringing our hands about that pay gap when we know that a huge part of it is that so many women are trapped in part-time low-paid employment. This issue of the €20,000 threshold will very much affect women workers. I ask the Minister to reflect on the €20,000 threshold. I hear what she says about bringing amendments to the Seanad that will not be policy related, but it is disappointing that the Government has decided against the pre-legislative scrutiny recommendation to get rid of the €20,000 threshold, and will continue with it.
The other key issue is that of opt-outs. A quasi-mandatory system of auto-enrolment is not what we should have. It needs to be mandatory for all workers. There is also a serious concern about self-employed workers and their lack of access to an auto-enrolment scheme. However, there is a particular issue whereby those with a pre-existing PRSA will not be considered for inclusion in the auto-enrolment scheme. A lot of the conversation has been about pension coverage but we also need to talk much more about pension adequacy. While 46% of all workers in this country have occupational or personal pensions, what is in those pensions is often not talked about. In particular, we know that some of the contribution levels of those with a PRSA are extremely low, which points to very real concerns further down the line regarding pension adequacy.
I am not sure we have very good data on pension adequacy. I know some research has been undertaken but I would like to hear from the Minister about her conversations with representatives of the Pensions Authority on the exclusion of those who currently have PRSAs and on the seven-year period. The seven-year wait until the Minister will seek to include those on PRSAs is very long. It means wasted years for those on PRSAs and a missed opportunity, in the context of the overall Bill, to get things right now.
The question of what pension adequacy means is important. In this regard, we are aware of certain developments in certain sectors. When I was looking at the labour force survey data today, I noted there has been a collapse in occupational pension coverage in the caring, leisure and recreation occupations over the past three years. We do not really know why but we know there have been changes somewhere and a resulting significant increase in personal pensions. The question going through my mind concerns occupational pensions in the caring, recreation and leisure professions, which are low-paid. If employees in these professions now have personal pensions or PRSAs, how much are they actually putting in? There is a genuine need to drill into who currently has a PRSA, how much they are currently contributing and whether we are in any way satisfied they have coverage.
The final issue I want to raise is one that has been raised by the trade union movement and that I know has been covered in the Dáil, namely, the fear or concern that employers currently operating occupational pension schemes may decide to close them and move to automatic enrolment schemes. If I am correct that the Minister has agreed to share the legal advice on why she could not address this in the Seanad, I would very much welcome seeing it. My apologies if this has already been raised in the Minister's speech. There is genuine concern that some employers will move to close their occupational schemes in favour of automatic enrolment.
I thank the Minister for being in the Seanad today and introducing the legislation. I am very proud that it is a Fianna Fáil–Fine Gael Government that is introducing and spearheading it.
My colleague Senator Sherlock just described pension adequacy. It is for reasons of pension adequacy that the legislation is being introduced. You have to start somewhere. I remember sitting in the Seanad as social protection spokesperson in 2016 when then social protection Minister, Leo Varadkar, started the conversation about automatic enrolment. His Department started working on it at that time. The Bill is really important and so many workers will reap the benefits. As my colleague said, it will not be for another 30 or 40 years, but I hope the current Minister will be thanked down the line.
As we know, automatic enrolment involves a quasi-mandatory pension system whereby employees, subject to certain parameters, are automatically enrolled into the quality-assured retirement savings system, with freedom of choice to opt out. It is designed in this way to increase supplementary pension coverage, especially among those who have not joined a pension system due to inertia rather than unaffordability. Inertia can be observed in the current data on supplementary pension coverage, which shows that 56% of those in employment have an active supplementary pension while just 35% of the private-sector workers have such coverage.
The Minister went through every section of the Bill in detail. It passed through the Dáil on 22 May and I hope it will pass through this House without any issues. Its enactment will pave the way for around 800,000 workers to be brought into the retirement savings scheme for the first time. This implies a huge number of people will have additional income when they need it in their retirement. Indeed, the implementation of the automatic enrolment retirement savings system represents what is probably the single biggest reform of the pension system in the history of the State. It is a very bold move. We have been talking about it for nearly 25 years and it is finally being done.
No systems are perfect. In this regard, I agree with my colleague on having a review of how the system is going. I presume that will be done annually by the Minister's Department. While no system starts life perfect and every system must be tweaked, you have to start something, and the system we are introducing will really assist workers down the line in retirement.
As has been said, the State pension system will remain the bedrock of the Irish pension system, but I hope future Irish pensioners will have that bit more and reap the benefits of their contribution to Irish life when they retire.
While some employers provide their employees with occupational pension plans and other retirement savings arrangements, there is a large gap in retirement savings which this Bill aims to fill. Pensions are complex and people tend to put their pensions on the long finger. In this regard, I did a tally of my friends. I am 42 and not even half of us have a pension. Fortunately, I will have one from the Oireachtas, but that is a rarity. These are people have been working in the private sector for most of their working lives, from the age of 20, so they are 20 years without pension coverage. They are now trying to scramble together pensions. They will be in a worse position than newer entrants who will be entering the system in their 20s.
The system is long overdue. I congratulate the Minister and her officials for introducing it to the House. I hope it will go through seamlessly and be commenced without any delays. Well done to the Minister.
I welcome the Minister to the House. Automatic enrolment has been a topic of conversation for a considerable time. Sinn Féin supports it in principle and has long advocated it. However, we are not satisfied with the structure outlined in the Bill and consequently will not be supporting it on this Stage. Should substantial changes be made during its passage, we will consider supporting it on a later Stage.
Automatic enrolment is necessary because many workers lack adequate pensions to support them in retirement. More individuals are now approaching retirement in precarious circumstances than in previous generations. Many older people are renting, for example, and this number is increasing. The underlying assumption of the State's pension system has been that, by retirement age, people's housing situations will be settled, be it through local authority accommodation or paid-off mortgages. This is no longer a safe assumption. More people are in precarious situations due to the mishandling of the housing crisis by the current and previous governments. There is significant reliance on the State pension, which Sinn Féin wants to see strengthened. We also support greater contributions to secure more people's futures, which aligns with the principle of automatic enrolment.
However, we have two primary issues with the legislation. First, we believe any new pension framework must be built on strong foundations. We are concerned the Government's reliance on private funds is not a solid foundation. This approach risks being a boon to the private pensions industry and poses significant risks for workers, who will depend on the schemes. During the Celtic tiger years, many found their long-paid-into pensions, whether defined benefit or defined contribution, were worth far less than expected. People had to work longer, make tough accommodation decisions or remortgage. This experience showed that private pension funds were not a strong foundation for an automatic enrolment scheme.
We have long outlined our views on how automatic enrolment should be structured, and these are detailed in our submissions to the straw man document. We believe the funds should be managed in a way that guarantees an adequate pension in retirement. The financial crash left many defined pension scheme members at the mercy of the markets, an approach we cannot risk repeating with automatic enrolment. We oppose the idea of gifting the private pensions sector workers' hard-earned savings, which would only increase private providers' profits through substantial fees. The NTMA should manage these funds. It already manages several Government funds. It could prioritise citizens' financial well-being rather than its own profit, ensuring contributors' comfort in old age. It could also invest in green energy, housing projects and other secure investments to the benefit of our country.
We are in the midst of a cost-of-living crisis. While we agree with automatic enrolment in principle, the inability to opt out for six months is problematic, especially for low-income workers who might need every euro for essential bills. This is an additional concern we have with the current proposal.
In addition, the issue of the right to retire at age 65 remains unresolved. After decades of hard work, people should not have to choose between signing on the dole or continuing to work beyond 65. The Government has not made any of the necessary moves on this issue. The Minister had indicated some willingness to consider it but no concrete action has been taken.
We recognise the changing landscape for workers compared with ten or 20 years ago. The cost-of-living crisis and the shifting nature of home ownership necessitate a secure pension system. We support the principle of automatic enrolment but we insist on a solid foundation for its structure. Entrusting the NTMA with managing these funds would be a better approach than what is proposed. For these reasons, we cannot support the legislation at this point. Automatic enrolment has been a topic of discussion for some time but we cannot support the Bill in its current form.
I welcome the Minister. Senator Burke made the point that Paul Kenny, the former Pensions Ombudsman, and Colm Fagan, a very distinguished actuary, have a radically different proposal for managing pension funds of this kind from what is set out in the Bill. The proposal advocated by them received an international award for excellence when it was devised and published. Reading between the lines, it seems the Government's attitude and that of the Pensions Council has been to disregard their proposal on the grounds that it has not been tried before in any state similar to Ireland.
I appreciate that the Minister was advised by the Pensions Council not to accept the proposal by Mr. Kenny and Mr. Fagan. However, I do not accept the proposition that the Pensions Council was entirely independent in coming to that view. The figures proposed by the proponents of the alternative system would in all probability provide far better pension entitlements over a long period than would the particular way of doing things set out in the Bill. In essence, the system now under contemplation suggests that an individual should have an individual account that will be managed, with various degrees of risk exposure, for them. In effect, Mr. Fagan and Mr. Kenny favoured the creation of a fund in which every participant would be allocated units. On an actuarial basis, their contention is that such a fund would, over time and on the basis of ordinary actuarial principles, guarantee a far greater return for pensioners or persons coming up to pension age than would the scheme proposed by the Government.
I do not claim to be an actuarial expert. However, I do not think it is good ground to reject a scheme that, on the face of it, appears far more attractive than what is proposed simply on the basis that it has not been tried anywhere else, especially when it was the subject of independent evaluation by independent consultants who found no fault with it and where it was, as I said, the subject of a major award for its innovative approach to this issue. I want to put it on the record of the House that the Minister and the Government have decided to go the route laid out in this legislation, which is, in effect, an agglomeration of individual accounts and entitlements. If Messrs Kenny and Fagan are correct, this will result in diminished benefits for pensioners as time goes by. If they are correct, this is a lost opportunity and a strategic error.
Senator Burke asked whether these matters will be reviewed at some point. Perhaps they will or perhaps not. Having been a Minister and having been in these Houses for a considerable time, I consider it highly unlikely that a strategic decision of this kind will be reversed. The best time to make a choice of a strategic kind is at the outset. I strongly suggest that rather than simply relying on the view of the Pensions Council, the Government should pause this legislation and ask some group, such as the Economic and Social Research Institute, ESRI, to carry out an evaluation of the Fagan-Kenny approach as compared with the approach favoured and now being adopted by the Pensions Council. Let us have a body like the ESRI take a long hard look at the issue, by way of a public, transparent process, and produce a report on what are the drawbacks of the Fagan-Kenny proposal compared with that set out in the Bill and whether the claims made for their proposal of a greatly enhanced entitlement and protection for people who are enrolled in the funds would, in fact, arise if their scheme were accepted.
Senator Burke suggests that we should wait and see for a while. Senator Higgins is a great person for putting down amendments to seek reports on the operation of schemes and so on three months, six months or one year after their introduction. It happens with great frequency that those amendments are not pushed to a vote. I agree with the reservations so gently expressed by Senator Burke that this is a really radical choice and that we should, at this stage, just pause it for another three months or whatever and obtain an independent view as to whether the option we are being asked to make legislatively is the correct option.
Senator Moynihan spoke about extending these provisions to the self-employed. Bogus self-employment is one problem. If we extend a 12% levy, split between 6% and 6%, even with a Government contribution of up to 2%, we will increase the incentive for people to be self-employed. As somebody who has been self-employed all my life, I know the difference between being self-employed and a schedule E worker. It is not necessarily a good idea to impose on the self-employed, against their wishes, decisions in regard to their life savings and investments. I do not agree with Senator Moynihan that there should be any wider extension of this scheme.
At the moment, employers pay PRSI of 11% at the top rate. These provisions will provide for an extra 6% to be payable on top of that, which amounts to 16% over certain portions of income on the employer's side of the wage bill. As I understand it, employees normally pay 4% in class A contributions, with these provisions adding up to 6% on top of that for them. The Government is saying it will top that up with a contribution rising to 2%. My understanding is that universal social charge, USC, is charged on pension contributions as well. Will the Minister confirm that? This is not a great giveaway by the Government. In fact, it is charging USC, which is a very heavy levy on income, on pension contributions. I would like confirmation as to whether that is intended to continue.
The Fine Gael Party was about to abolish USC, but that is like draining the Shannon. It just has not happened yet and I would not put all my money on it ever happening.
The economic effects on employment in this State, and on this State being a good place to employ people, have to be considered. I do not doubt the proposition that people are under-providing for their pensions but I wonder whether mandatory enrolment is a good idea for everybody and if the rates of contribution should not be taken in conjunction with PRSI to give a better picture of what the effect on payrolls will be. Senator Moynihan was critical of employers seeking to avoid their obligations but, in fact, many employers are facing difficult choices as to whether to expand their payrolls or not. The purpose of a Second Stage debate is to consider whether in principle what is being proposed is a good idea and I am not satisfied this is a good idea. I voice those concerns.
I welcome the Minister, Deputy Humphreys, to the House. She knows that this is fundamental and landmark legislation. As she stated, one third of people do not have access to a pension at the moment. The Irish Longitudinal Study on Ageing, TILDA, has stated that the population over 65 is going to double between now and close to 2050. People in Ireland are living to an average age of approximately 82. It is crucial that we, as a Government, plan ahead and support people to live active and healthy lives, and provide access to income supports and proper pensions so people are able to manage the period of adjustment after the end of their working lives when they are spending time with their families. Having a healthy and active life is important.
This scheme is welcome. Is there a breakdown? The Minister said that one third of people who are working privately do not have access to a pension. Is there any breakdown across counties? Do we have an idea of the figures for those who pay into a pension in urban and rural areas? The larger corporate groups have good pension plans in place but many rural areas have SMEs, microbusinesses and one-man or one-woman businesses. Such companies have limited supports in place.
I am conscious that we are supporting employers, who, as the Minister mentioned, will be contributing a part, as will the State, at the beginning of the scheme. It is anticipated that the amount of the contribution will increase in the coming years.
I thank the Minister for giving us an update. We are here to support our microenterprises and SMEs. We need supports to be in place. If the over-65 population is going to double, which we all want, we must ensure these supports are in place.
I acknowledge the Minister's welcome visit to my area. She probably saw many community groups. Speaking of people who are very active, the Minister visited Roscommon and Ballinasloe. I received a phone call today from a man who told me about a lovely community park in east Galway. He is 80 years of age and his neighbour across the road is 87. He told me they were hoping for a little bit of help in respect of the park. These are the people who are active in their communities. They are the volunteers who are out there and trying to do this work. The Minister and I spoke about how we keep our volunteers active. We hope that people will retire on an adequate pension and we want them to stay active in their local communities. That is something we need. The Minister got a sense of that when she visited our area around Ballinasloe. People in their 80s call me, wanting to contribute to their local communities and to develop their areas. To me, that is Ireland.
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-----
It will apply to contributions.
We are not proposing any changes to that. I will clarify that with the Senator.
I will be clear on it. I do not want to give the Senator the wrong answer. Again, all funds will be pooled for investment. Each person will not have their own investment fund. That is not what will happen. I think that is a misunderstanding by Mr. Fagan and Mr. Kenny. I thank the Senators for their contributions. I hope I have addressed them as best as I can. I will provide clarification on that issue.
I thank the Minister.
Question put and declared carried.
When it is proposed to take Committee Stage?
On Tuesday, 11 June 2024.
Is that agreed? Agreed.
Committee Stage ordered for Tuesday, 11 June 2024.
When is it proposed to sit again?
Tomorrow morning at 10.30 a.m.
Is that agreed? Agreed.
Cuireadh an Seanad ar athló ar 6.21 p.m. go dtí 10.30 a.m. Dé Céadaoin, an 29 Bealtaine 2024.
The Seanad adjourned at 6.21 p.m. until 10.30 a.m. on Wednesday, 29 May 2024.