Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697803791646.pdf (Ireland)
Pre-legislative Scrutiny of the General Scheme of the Automatic Enrolment Retirement Savings System Bill 2022.

Question from Committee: What consideration was given to other forms of meeting the income shortfall at retirement for people earning more than €20,000 other than an Auto Enrolment Scheme?
Response from Department of Social Protection: This note provides an overview of how various Government initiatives and review groups have considered the issue of supplementary pension savings and how the pension savings gap could be addressed, so that low to middle income earners can achieve an adequate income in retirement.

The main objectives of Irish pensions policy are adequacy and sustainability.
These two objectives are interrelated and therefore need to be considered jointly: without sustainability, there can be no long-term adequacy.

Pension policy design theory takes the position that the key to achieving both adequacy and sustainability is by way of a diversified pension system characterised by both public and private provision.

The use of a diversified multi-pillar system is a widely accepted model for pension design and reform.
Organisations such as the World Bank, the OECD and the International Labour Organisation, advocate a multi-pillar approach with each pillar complementing the others to reduce risk and increase total retirement income.
Broadly speaking this multi-pillar approach entails a publicly managed first pillar – the State pension, a second pillar consisting of occupational pensions and a third pillar consisting of private, individual, pension plans funded from personal savings (see Appendix for a more detailed description of each).

1 Ireland’s first pillar State pension system developed incrementally over the course of the twentieth century and by 1990 it provided a basic level of pension to both employees and the self-employed.
From a public policy point of view, a systemic review of adequacy and sustainability concerns began to be considered from the mid-1990s and these included: • The Pensions Board National Pensions Policy Initiative (1998) considered strategies to expand provision for retirement income in the first and second pillars.

This report set out proposals to improve supplementary pension provision in the second pillar, including through the introduction of Personal Retirement Savings Accounts (PRSAs).
• The National Pensions Review (2005) considered various approaches to sustaining the first pillar State pension, including providing retirees with the option of deferring drawdown of their State pension in exchange for a larger pension starting at a later date.
It also considered ways of enhancing the second pillar supplementary pension system including through encouraging the proceeds of SSIAs to be saved for retirement and the introduction of a matching top-up incentive for PRSAs, to replace the tax-relief on pension contributions arrangements.

In addition, this review examined a range of alternative approaches to the provision of retirement income.
These included: o Alternative Approach 1 - Similar to the current pension system except that income tax relief on supplementary pensions would be available at the top rate for lower rate and non-taxpayers.

o Alternative Approach 2 - This system would require mandatory contributions to a private sector financial institution for earnings between the current PRSI threshold and twice Gross Average Industrial Earnings.
o Alternative Approach 3 - Similar to Alternative Approach 2, but contributions would be paid to a State defined contribution arrangement.

o Alternative Approach 4 - A mandatory State system, separate from the PRSI system, which would pay benefits based on average career earnings.

o Alternative Approach 5 - Increasing the State Pension (Contributory) to 50% of Gross Average Industrial Earnings.
2 Alternative approach 1 focuses on increasing incentives for people to make their own supplementary pension provision.

Alternative approaches 2 and 3 were options which would oblige people to make supplementary pension provision on a defined contribution basis either via the existing private pensions market (alternative 2) or via a State provided system (alternative 3).

Alternative approach 4 was similar to approach 3 but with a defined benefit rather than a defined contribution model.
Alternative approach 5 focused on increasing the value of the pillar 1, State pension, payment.

The review recommended a range of specific enhancements to the current voluntary supplementary system as the means through which significant improvements in supplementary coverage and adequacy could be achieved.

These included: o Improving the value of State incentives for personal contributions to PRSAs and occupational pension schemes.

o Encouraging the proceeds of SSIAs to be saved for retirement.
o Imposing a cap on incomes for pension contribution and benefit purposes and using the savings that would arise from less tax relief being provided to higher rate taxpayers to improve incentives for the lower rate income tax taxpayers and for those who do not pay income tax.

• Special Savings for Retirement (2006) reported on an examination of the practicalities of introducing a mandatory or quasi-mandatory pension into Ireland.
In its analysis, this report considered whether the objectives of mandatory pension provision could be achieved by an increase in the contributory State pension.

An alternative approach whereby qualifying earners would on a mandatory basis contribute to a pre-funded supplementary system that would then provide contributors with retirement income above that paid out through the basic State pension was also examined.
A variation on this approach - a soft-mandatory or automatic enrolment system with an opt-out facility - was also analysed.

A further option – a hybrid system comprised of an 3 increased State pension as well as a mandatory supplementary system – was the last approach examined here.
• The Government’s Green Paper on Pensions (2007) built upon the ‘National Pensions Review’ (2006) and the ‘Special Savings for Retirement’ report (2006) and formed the basis of a consultation process on the future direction of Irish pension policy.

This document set out a number of reform options for the State pension ranging from maintaining the status quo to fundamental reforms involving the use of measures such as universal entitlements.
It also considered possible approaches to the further development of the supplementary pension system.

• The National Pensions Framework (2010) which followed on from this 'Green Paper on Pensions', outlined the then Government’s plans for reform of the Irish pension system.

These plans were underpinned by the following basic principles: (i) Proposals for pension reform must be affordable and sustainable; (ii) The State Pension will continue to be the fundamental basis for the pension system.
The Government will seek to ensure that the level of the State Pension is maintained at approximately 35 per cent of average weekly earnings; (iii) Supplementary pension coverage and contributions must be increased to improve adequacy of incomes in retirement; (iv) The system of tax incentives offered by the State should be equitable; (v) Employees, employers and the State each have a role to play in any pension reform; (vi) People should be supported to work longer through flexible working arrangements; and (vii) Pension reform should focus on arrangements for the future rather than attempt to address shortcomings of the past.
In 2014 the OECD published its Review of the Irish Pensions System.

This report, commissioned by the Irish Government, provided a focused review on the viability and long- term impact of proposed changes in pension policy.

The review compared the organisational arrangements and performance of retirement income provision in Ireland to those in other 4 OECD countries with comparable systems.
In making its recommendations, the OECD’s report drew on international experiences and examples of retirement arrangements elsewhere.

The report concluded that as the population ages, Ireland faces challenges on the financial sustainability of its pension system.

It further concluded that that the single greatest goal in Irish pension policy should be to increase supplementary pensions coverage through the introduction of a mandatory or quasi mandatory earnings-related system.
The review highlighted that Ireland was then one of only two OECD countries that did not then have a mandatory earning-related pillar to complement the State pension and therefore faced the challenge of filling the retirement savings gap (that is the gap between a basic income in retirement compared to an adequate income in retirement).
In 2015, following a commitment made in the Statement of Government Priorities 2014 – 2016, the then Government decided to develop a roadmap for the introduction of a new, universal, supplementary workplace retirement saving system.

To this end, a high-level Universal Retirement Savings Group (URSG) (including external/international pension reform expertise), chaired by the Department of Social Protection, was established.
The work of the Group was informed by the outcome of the OECD’s review of the Irish pension system and took into consideration the prevailing international policy direction for the development of second pillar supplementary pensions.
This group considered various models to increasing income in retirement, including: • Additional contributions paid via the PRSI system which would be allocated to the individual account of each contributor; • Additional contributions paid via the PRSI system which would accrue to the general Social Insurance Fund.
The funds (together with any growth if invested) would be redistributed and used to fund an increased (flat) rate of State pensions for all; • Increase second pillar pension coverage through a new automatic enrolment system.

In 2018 the Government published two reports on the future direction of Irish pension policy: • The Roadmap for Pension Reform sets out a range of measures presented under six strands that, taken together, were designed to modernise the pension system.
One of the six strands provided for the introduction of an automatic enrolment system while 5 the other strands sought to introduce reforms in all three pillars of the Irish pension system and ensure consistency and coherence between them.

• The Strawman Public Consultation Process for an Automatic Enrolment Retirement Savings System provided the basis for a wide-ranging consultation process on the implementation of an auto-enrolment system.
It generated significant interest and engagement from stakeholders.

A consistent finding from the process was overwhelming acknowledgement of the need to reform the current purely voluntary nature of Irish supplementary pensions.

The consultation process also found almost universal support for the introduction of an automatic enrolment retirement savings system.
However, there was no single view around the precise manner in which the AE system should operate and how it might interact with current pension provision.

Current Government Policy: Following on from the Strawman, the previous Government, in October 2019, made decisions on a range of design features for an Automatic Enrolment retirement savings system.
These included the target membership, the contribution rates, the policies in relation to opting-out and re-enrolment, the organisational approach and the administrative arrangements.

In addition, there were five main areas identified where work was to continue in order to produce design options for Government to consider.
These areas related to the design of: • • • • • the scope and role of a Central Processing Authority; the nature and functions of the Registered Providers, including an examination of the inclusion of a public body as a Registered Provider; the investment framework and funds to be offered by Registered Providers, including the design of the default fund, and also the pay-out phase; the State financial incentive; and the phasing of implementation.
Finally, in June 2020 the new Programme for Government contained a commitment to implement an auto-enrolment system as follows: 6 ‘The new Government will introduce a pension auto-enrolment system.

Taking account of the exceptional strain both employers and employees are now under, we will seek to gradually deliver an automatic enrolment scheme, based on the following principles: • Matching contributions will be made by both workers and employers and the State will top up contributions.
• There will be a phased roll-out, over a decade, of the contribution made by workers.

• There will be an opt-out provision for those who choose to opt out.

• Workers will have a range of retirement savings products to choose from.

• There will be a charges cap imposed on pension providers.’ On foot of this Programme for Government commitment, policy development work focussed on the preparation of final design principles for the AE retirement savings system.
The design that was brought to Government was based on extensive research, stakeholder consultation and the experiences of many other jurisdictions, seeking to mirror what has worked well elsewhere and to avoid what has not worked well.

In March 2022 the Government decided to proceed with the implementation of the auto- enrolment system with a timeline for the enrolment of the first participants in 2024.
Since then, the focus has been on implementing the agreed design, including by drafting the necessary legislation that will underpin it, designing the organisational structures and the technical system to operate it, and communicating this reform to stakeholders and the public.
7 Appendix – The Multi-Pillar Pension System The rationale behind the use of this multi-pillar system was first proposed in the World Bank’s seminal study ‘Averting the Old Age Crisis: Policies to Protect the Old and Promote Growth’ (1994).

The study noted that demographic changes caused by rising life expectancy and declining fertility will pose a serious challenge to the financing of pension systems throughout the world.
The World Bank identified redistribution, saving and insurance as the three functions of old age financial security.

Established pension policy argues that the multi-pillar approach acting together offers security and insures against individual and economy-wide risk.

The mandatory publicly managed first pillar’s main objectives are redistribution and insurance, providing a basic level of defined benefit in retirement funded via a payroll tax.
The World Bank argues that States cannot rely on a privately managed pillar to provide a social safety net, and therefore a publicly managed tax-financed pillar is necessary.

The second pillar’s main objectives are savings and insurance, providing benefits via regulated personal savings or occupational savings plans.

This pillar is funded and privately managed.


Funding is key as it makes costs clear and, additionally, unfunded systems can lead to large intergenerational transfers from young people to older workers.

This is because in a Pay As You Go (PAYG) system, the funding obligation lies with future workers.

A PAYG financed pension is based on the promise that future workers will fund the pensions of today’s workers.
Furthermore, it is argued that the funds in this pillar should be privately and competitively managed in order to maximize the likelihood that economic rather than political objectives will determine the investment strategy, and therefore produce the best return for members.

The third pillar refers to personal pension schemes which act to supplement the retirement benefits from the other two pillars via personal retirement savings to be used by individuals who desire additional old age security.
Personal pensions can also be used to support self- employed people or employed people who do not have an occupational pension scheme.

Personal pensions are normally managed by a life assurance or investment company.

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