Social Protection Committee publishes report on the Automatic Enrolment Retirement Savings System Bill

This Committee have put forward 21 recommendations in this report which span over 9 key issues.

In its pre-legislative scrutiny of this Bill, the Committee held meetings with officials from the Department of Social Protection, The Pensions Authority, the ESRI and stakeholders from ICTU, Irish Life, IBEC, and Insurance Ireland. The Committee also brought in expert consultants to carry out a piece of work on this topic.

Ireland is currently the only OECD country that doesn’t operate an Automatic Enrolment (AE) or similar system as a means of promoting pension savings. The proposed new system would be designed to simplify pensions decisions for workers and make it easier for employers to offer a workplace pension.

Under the proposed AE scheme, employees will have access to a workplace pension savings scheme which is co-funded by their employer and the State.

Participation in the new scheme will be voluntary, workers will have the ability to opt-out or suspend participation for periods of time.

The scheme will include matching employer contributions and a State top-up.

For every €3 saved by a worker, a further €4 will be credited to their savings account, €3 by employer and €1 by the State

No tax relief will be available on deductions from salary and wages for auto-enrollment.

Under the proposed scheme, automatic enrolment will be applied to all employees aged between 23 and 60 years who are earning at least €20,000 a year across all employment and are not an existing member of a workplace pension scheme, or one that meets the minimum contributions requirements.

The decision to implement an Automatic Enrolment system is consistent with the key recommendation contained in the OECD’s ‘Review of the Irish Pensions System’, published in 2014, that the single greatest goal in Irish pension policy should be to increase the supplementary pension coverage rate through the introduction of a mandatory or quasi-mandatory earnings-related system.

Launching the report, Committee Cathaoirleach Deputy Denis Naughten said: “This is an important piece of legislation which is being designed to simplify the pensions decision for workers and make it easier for employers to offer a workplace pension. Under Automatic Enrolment, employees will have access to a workplace pension savings system scheme which is co-funded by their employer and the State.”

“The decision to implement an AE scheme is consistent with the key recommendation contained in the OECD’s ‘Review of the Irish Pensions System’, that the single greatest goal in Irish pension policy should be to increase the supplementary pension coverage rate.”

“The introduction of Automatic Enrolment signifies a shift from a system whereby employers may or may not make provision for a workplace pension scheme to one where every worker will have access to a workplace pension.”

“I would like to thank all Officials and Stakeholders for their valuable engagement with the Committee, and Members for their hard work. I would also like to acknowledge the assistance of the Committee Secretariat in preparing this report.”

Some of the key recommendations from the Committee are outlined below:

The Committee recommends that the lower age limit be reduced from 23 to 16 years, aligning it with the PRSI minimum age threshold.

The Committee recommends that the lower income threshold of €20,000 be removed as the threshold of €20,000 can penalise young workers, low earners, and disproportionately women.

The Committee recommends that when participants are auto enrolled, they should be given a sample of the likely pension they will receive on retirement in real terms by adjusting for inflation.
The Committee recommends that Automatic Enrolment be covered by a strong governance framework, incorporating annual evidence-based reviews.

The Committee recommends that investment advice be offered to all AE members to allow them to select the most appropriate fund for their age, gender, financial position, and circumstances.

The Committee recommends that clarity be provided on the form of taxation to be applied to pension pots in retirement so that members can make proper provision for the future over the long term.

The Committee recommends that an examination be carried out as to why only 20% of Investments by Irish Pension funds are invested in Irish equities and bonds and whether there should be a mandatory minimum of auto-enrolment funds invested in Ireland to ensure that this country benefits economically from these very large funds”.

The Committee recommends that the investment funds be prohibited from investing in fossil fuels or the arms industry.

The Committee recommends that a minimum percentage of the funds should be invested in Irish renewable energy developments in order to ensure our Climate Action obligations. As with without achieving these, the future of all pension funds will be at risk from climate change.

The Committee recommends that there is a two-year lead-in period following the Bill being passed and signed, to allow business to be ready for the implementation.

The Committee recommends that head 5 be carefully drafted to ensure that workers are not required to spend a short time in the AE system if they will be joining an occupational pension as part of their employment within 12 months.

The Committee recommends that the total amount of all charges should equate to a maximum of 0.5%.

The Committee recommends that the Department carefully consider tax relief in the General Scheme of the Automatic Enrollment Bill and its impacts on the wider pension system.

The Committee recommends that the State Pension should either be statutorily linked to the Consumer Price Index or a percentage of the Living Wage to ensure the real value of the State pension is not eroded as auto-enrollment is rolled out