Wednesday, 4 December 2019

Ceisteanna (39)

Willie O'Dea


39. Deputy Willie O'Dea asked the Minister for Employment Affairs and Social Protection if the person or body to operate the auto-enrolment pension system has been decided; her plans to address concerns regarding the operation of this system and the lack of a drawdown option for a mortgage deposit for first-time buyers; and if she will make a statement on the matter. [50499/19]

Amharc ar fhreagra

Freagraí ó Béal (6 píosaí cainte) (Ceist ar Employment)

The exchange between the Minister and Deputy Penrose highlights the importance of the matter I am now raising, that of auto-enrolment. The Minister will be aware that the system in the United Kingdom was originally announced in 2008 and the legislation did not appear until 2012. Where do we stand on auto-enrolment? Is the last proposal we saw, which came as a result of the consultation, the final product? Will there be early access for people trying to buy a house or for people suffering from permanent ill health?

I am pleased that the Government recently approved significant elements of the design for our proposed automatic enrolment retirement savings scheme. These include key decisions on the target membership, the contribution rates, the policies on opting-out and re-enrolment, the administrative arrangements and organisational approach, and the investment options.

As stated in A Roadmap for Pensions Reform, the Government proposes to begin implementation of this system, which we know affectionately as automatic enrolment, by 2022. This will see a transition from the current purely voluntary system to one which will, subject to certain parameters, automatically enrol employees into a quality-assured retirement savings system. The saver will maintain the freedom of choice to opt in or opt out.

The Government has decided that a new central processing authority will be established by the State to administer the automatic enrolment system. Proposals are being finalised by my officials on the appropriate scope and role of this central processing authority, which I hope to bring to Cabinet very early in January. The proposal will include an assessment as to the extent to which existing public infrastructure could be used to carry out some or all of the functions that will be needed to operate the automatic enrolment system.

While an approach allowing for an early drawdown for a mortgage deposit, for example, may appear reasonable and improve the attractiveness of saving for some people, the core policy objective of introducing automatic enrolment, including the employer and Government subsidies, is to ensure people have adequate savings when they reach 66, 67 or thereafter. Allowing people to access their pension savings early for non-pension purposes would inevitably reduce the value of the future fund available to them, and given that the combined value of employer and Government contributions to the pensions savings scheme will exceed those of the workers, it could distort the housing market. That is the view of some of our advisers. However, the Government has decided that a limited number of savings suspension periods will be facilitated for members who wish to cease making their contributions temporarily for exactly the reason the Deputy described, namely, that they may be saving for their house. These savings suspension periods could be used for people with children going to college or for whatever reason, but they are limited in their scope.

I thank the Minister for her response and I welcome that improvement on the original proposal. Will she comment on the situation of a person who is suffering from permanent ill health. A holiday period does not seem to be appropriate to that. What does the Minister envisage for people who are already covered by a pension scheme where the terms are more generous than the auto-enrolment scheme, where a larger pension payment may arise and the contributions might be higher etc.? In that case, will the employer be forced to abandon that in favour of the lower auto-enrolment scheme? Will the Minister give an assurance that those schemes will be kept under constant review to ensure there will be no levelling down?

If people who are ill are not making a contribution to their pension scheme because they are not working, obviously the State and the employer will not be making the pension scheme contributions either. We might need to look at that in the future. We always have the State non-contributory pension for people who do not have a full contribution history to get a State pension as a kind of a base level to ensure that nobody has to live below a certain level. The Deputy makes an interesting point and I might make further inquiries as to how we propose to deal with long-term periods for people.

Some 585,000 people in the private sector do not have a pension scheme at all. They are the people we were going to enrol on a phased basis originally. Anybody outside those 585,000 people can opt in to the scheme. As the Deputy suggested, if somebody with a current pension finds this pension scheme more attractive to him or her, there is nothing stopping them taking their current pension and moving it into the automatic enrolment system. The most important thing for me and, it is hoped, for everybody else when they see the final document is that people have complete ownership of their pension pot. They also have choices. They have the choice to go with the private sector or a public offering. We know people have different views on both of those.

People need to have full respect for whatever the central processing agency is. I know some people have suggested that it should be the National Treasury Management Agency, NTMA, or Revenue. However, if we have to establish a new agency, that agency should command the same respect and authority in the legislation we pass. For me it is all about the people owning their pension pot and having choice.

When will the final proposal be ready? The proposed central processing agency seems to be a very large bureaucratic and expensive operation. The Irish Congress of Trade Unions and the employers are ad idem in proposing that the Revenue Commissioners should be allowed to collect the pension payments because they are already collecting social insurance etc. Many employers' payroll systems are set up to accommodate the Revenue Commissioners. It has been suggested by people who know more about this than I do that that would be a more sensible way to proceed.

It cannot be very big and expensive. It will be just a governance agency, responsible for the regulations and ensuring the fiduciary responsibilities are being met by the providers of the pension pot.

I am not sure whether the Deputy is aware from the memorandum I brought forward but there is a cap of 0.5% on all administrative costs. That includes the running of the central processing authority and all the fees that can be charged by the public or private offerings that will be on the carousel.

The Revenue is an authoritative and well-respected agency of the country and it collects tax, but this is not a tax. This is a savings scheme that is being incentivised by employers and the State. It is not the same thing. What we certainly do not want is to have people of the perception that the Government or the State is taking more money out of their wages in some form of tax. This is something that we hope people will want to do. We hope people will see the value of their investment and of their investment being matched by their employer's investment and the top-up of the savings scheme by the State. This is a really good thing. It will cost a significant amount of money. It will be a large investment pot of money which it is hoped will remain in Ireland. However, it has to have the feel-good factor of people putting in their money and seeing it matched by the employer with a top-up by the State. All of this is with a view to having extra money in their back pockets when they reach retirement age.