Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697804212537.pdf (Ireland)
Second Opening Statement by Tim Duggan, Assistant Secretary General at the Department of Social Protection to the Committee on Social Protection, Community & Rural Development and the Islands On The Draft Heads & General Scheme of the Auto Enrolment Retirement Savings Scheme Bill 2022 Thank you, Chairman.

Good morning everybody, and my thanks to the Committee for the invitation to return following your engagement with other parties.
In my statement to the Committee back in December I explained – • why AE was being introduced; • how that honours a Programme for Government commitment; • how the design approach chosen by Government is evidence and research-based, how it has been influenced by a considerable public consultation, and how we have learned from implementations elsewhere in the world and from engagements with both domestic and international experts; • how it has been designed to make it easy for both people and employers to engage with and understand; • how it has been designed to give people choice but not require them to exercise any of it; and • how some further elements may be phased in over time once the system is bedded in and working for hundreds of thousands of employees.
Since then, you’ve met with and heard from a number of other parties – so I’ll spend the next few minutes addressing the main issues that have arisen.

It’s been stated that the 2024 implementation timeline may not be realistic.

The Committee should know that we now have a dedicated project team in the Department progressing a very significant work programme.
As part of that, we intend to outsource several key elements of the programme through procurement exercises to ensure that we are not doing things from scratch or developing anew – we are instead leveraging the solutions and expertise already available in the market.

The Minister has been very clear that while 2024 is both ambitious and challenging, it is achievable.

As such, we are now completely focussed on implementation of the design agreed by Government.
It has been suggested that the contribution levels proposed are too high by international standards – especially for employers.

However, our research shows that in some other jurisdictions, employers are required to pay more than 6% or are required to pay the lion’s 1 share of the total contributions.

We’ve also learned from other countries such as the UK, New Zealand, etc.
that their rates are not sufficient to provide income adequacy in retirement and they are now examining how they can either increase rates or convince people to save more.

For example, a review in the UK in 2017 recommended that contribution levels should be raised to a minimum of 12% overall.

It is worth repeating that the contribution rates have been set based on learnings from other jurisdictions and on what is advised as necessary for adequate income in retirement.
It is also worth repeating that the contribution rates will be gently phased in over 10 years to facilitate both personal and employer adjustment – and that this is a change from the original Strawman based on feedback during the public consultation.

Furthermore, employers get tax relief on any contributions they make to a pension arrangement.

To this end, employers can off-set their AE contribution costs against any corporation tax liabilities.
Therefore, the financial impact of AE contributions on employers is diluted by the current tax system.

The design agreed by Government seeks to strike an even balance between employee and employer contribution obligations.

It also gives very clear certainty to both employees and employers on the rates that will be applicable and when.

This certainty would be considerably undermined by periodic reviews and regular legislative changes as was suggested.
It’s been suggested that AE will impact on competitiveness.

The Committee may know that the National Competitiveness and Productivity Council’s recent report entitled “Ireland’s Competitiveness Challenge 2022” did express some concern that a number of measures being proposed by Government could represent a cost for employers, especially SMEs, through administrative burden and resourcing.
However, as I’ll explain shortly, we believe that the AE administrative burden and resourcing for employers is negligible.

In addition, it is worth noting that the Council welcomes AE and believes it (and other measures) are vital for Ireland to attract as well as retain workers and thereby support productivity growth.

And of course, it brings Ireland into line with all other OECD countries.

It has been suggested that the AE design will widen the pension gap and the gender pension gap in particular.
I think it is very clear that even a cursory examination would show that this makes no sense.

AE will be a significant step forward in addressing existing pension coverage in Ireland, and for the first time ever, will result in hundreds of thousands of lower earners and women, who currently have no supplementary pension coverage at all, being enrolled into a quality assured, easy to use, and financially incentivised retirement savings system.
In addition, even where people fall outside the proposed age and income thresholds, they will be allowed to opt-in, and where they so choose, their employer and the State will be legally compelled to make matching and top-up contributions respectively.

It is absolutely desirable to facilitate Additional Voluntary Contributions (or AVCs as they are referred to) in the AE design.
However, there are considerable policy and operational matters that arise with AVCs that need to be worked out in advance, and so it is extremely unlikely that they can be accommodated in the initial implementation.

Additionally, it is imperative that the system is as simple and straight-forward as possible to facilitate implementation by 2024 so that over three-quarters of a million people can start saving for their retirement as quickly as possible.
The Government’s design makes it clear that AVCs will be facilitated once the system is bedded in and operating well.

All of that said, the Department is currently examining a limited form of AVC that may be ready in time for the 2 initial implementation that could be availed of by those who may have to stop working for a while.
Even so, it is worth noting that there is no evidence that the provision of AVCs or otherwise has any material impact on gender pension gaps – after all, they are already available in existing occupational schemes and are available in other jurisdictions with wider gender pension gaps than Ireland.

It has been suggested that the age and income thresholds in the design should be removed or reduced.

It’s worth noting that it would be far easier for the Department if indeed these thresholds didn’t exist.
However, it is clear that doing that would result in a very significant number of people being auto-enrolled that either do not need to be – based on the replacement rate analysis I gave you in December – or are part-time earning to fund their education.

It’s not obvious that this would be the right thing to do.

In addition, there is evidence that auto-enrolling people below certain thresholds could result in poverty issues for some people.
Furthermore, it is important to note that it is really unsafe to make direct comparisons with other jurisdictions (such as the UK) without comparing all aspects of the systems and how they actually work as such limited comparisons without context can be very misleading indeed – and we can give more detail by way of example if the Committee wishes.
It has been suggested that the State top-up approach should not be used, and tax relief should be maintained because this doesn’t have an impact on whether people stay in or not.

To begin with, it is worth noting that the AE system is the only retirement savings system that people may be compelled to join by law.
Therefore, the Government, firstly, decided that all people within that pseudo-mandatory system should be afforded the same level of incentivisation from the State to ensure equality of treatment.

The tax relief system would not do that.

This became an issue in the UK where HMRC had to implement rectifying measures.
Secondly, in advance of that decision by the Government, the Department examined a range of options, including the possibility of applying normal tax relief and compensating those who would not benefit greatly from the tax relief with top- ups.

Such approaches would prove quite complex to design and implement, would be very difficult to explain in simple, understandable terms, and could be very costly for the Exchequer.
Thirdly, before we ever implement AE, pension portability is not a major feature of the Irish pension landscape because of the complexities and costs involved.

As a consequence, people who move employment frequently tend to end up with multiple pots.

Therefore, this immediate lack of portability with AE is unlikely to be a real problem in terms of the type of financial incentive provided.
Nevertheless, the Government has set out in its design how this issue of portability will be examined in due course once the system is bedded in and operating well.

Finally, the rationale for the CPA or the format in which it is proposed was questioned.

It’s worth remembering what the CPA is and what it will facilitate.

It is proposed that it will be established as a statutorily independent body that, while independent, will be accountable to Government.
It will act as a custodian in the sole interests of the AE members.

It will facilitate a pot-follows-member approach – which does not exist today and would be virtually impossible without a CPA-type structure.

Its existence means that employers will have little or no administrative burden to engage in – no forms to fill out, no staff to be trained, no need to provide information to employees, and no need to enrol employees – as 3 the CPA will deal with all enrolment and information matters.
It has also been suggested that a CPA isn’t necessary as existing public bodies could carry out its functions such as Revenue collecting contributions and the NTMA managing investments.

This has been considered.

However, the functions of the CPA are quite distinct from the functions of these bodies.

In reality, these organisations would have to do exactly the same thing as the proposed CPA (i.e., establish new structures and staffing, new IT development, new legislation, etc.).
In addition, they would require protocols and systems for hand-offs between them, an issue a singular entity like the CPA avoids.

In short, while it might appear sensible, the reality is that no cost savings or efficiencies would be achieved.

It is not possible to design a system that fulfils every possible criterion or wish.
The Government has sought to strike the appropriate balance between the earliest possible implementation of a fair and adequate system that will be suitable for the vast majority of three-quarters of a million people, and the provision of additional flexibilities and options over time.

I apologise for taking a little extra time this morning with this statement but felt it would be useful for the Committee to provide some additional clarity on these matters given the submissions you’ve received.
My two colleagues Ciaran Diamond and Sarah Judge here with me and I are more than willing to address any queries, clarifications or concerns you may have.

Thank You.

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