Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697803901304.pdf (Ireland)
Brokers Ireland submission to the Joint Committee on Social Protection, Community and Rural Development and the Islands on the General Scheme of the Automatic Enrolment Retirement Savings System Bill 2022 Brokers Ireland submission to the Joint Committee on Social Protection, Community and Rural Development and the Islands on the General Scheme of the Automatic Enrolment Retirement Savings System Bill 2022 Brokers Ireland submission to the Joint Committee on Social Protection, Community and Rural Development and the Islands on the General Scheme of the Automatic Enrolment 23rd November 2022 Brokers Ireland | Page 1 of 11 Introduction Brokers Ireland welcomes the opportunity to provide a written submission to the Joint Committee on Social Protection, Community and Rural Development and the Islands on the General Scheme of the Automatic Enrolment Retirement Savings System Bill 2022.
Brokers Ireland represents over 1,250 Financial and Insurance Broker firms located nationwide.

Approximately 900 of these Financial and Insurance Broker firms advise consumers on pension products and schemes.

In 2016, Brokers Ireland in conjunction with Standard Life carried out consumer research.
Among the findings in relation to Pensions was that those consumers who received advice from a Financial Broker are twice as likely to have a private or company pension and these people are likely to have higher pension funds with the average being €132,650 compared with €111,190 for those who don’t consult a Financial Broker.
Executive Summary of our submission The Table following sets out the details of observations and suggested changes to the current draft Bill, by reference to each respective Head of the Bill.
The main observations and suggested changes are summarised as follows: Structure and functions of the Central Processing Agency (CPA) • The financing of the CPA by an Exchequer loan should be specified in the Bill to be at commercial terms, in order to ensure fair competition with commercial providers of alternative private pension products.

• The CPA should be regulated by the Central Bank of Ireland in its function of acting as custodian of employees’ savings in the AE scheme.
• Membership of the CPA Board of Directors should include at least one individual with relevant experience and expertise in the provision of independent advice to consumers on retirement products and retirement planning.

• There should be strict legal separation within the CPA of AE participants retirement funds from the CPA’s own financial resources.
| Page 1 of 11 Brokers Ireland 23rd November 2022 Opting in and out of the AE scheme • The prescribed minimum enrolment age should be specified as [State Pension Age less 40 years] and not age 23 as provided for in the draft Bill.

• The prescribed upper enrolment age should be be specified as [State Pension Age less 10 years] and not age 60 as provided for in the draft Bill.
• The lower and upper earnings limits for AE inclusion should be specified in terms of average earnings and not as fixed monetary amounts, in order to future proof the limits.

• Employees who are compulsorily enrolled or re-enrolled into AE should have a 30 day cooling off period during which they can opt out and receive a full refund of their contributions, in line with the statutory 30 day cooling off period provided to consumers under other private pension products such as PRSAs.
• Where an employee opts out after enrolment (or re-enrolment) and receives a refund of their own contributions, employers should also obtain a refund of their contributions made in respect of the employee while the employee was enrolled.

Otherwise, a moral hazard arises where an employee could continuously enrol and opt out of the AE scheme receiving a refund of their own contributions each time, but retaining the benefit of their employer and State contributions.
• Employers and employees who already contribute actively to a PRSA contract should not be required to terminate such contracts and move to the AE scheme or to a DC occupational pension scheme; instead, they should be able to continue their PRSA contracts and opt out of the AE scheme, given that such employers and employees are likely to be contributing to the PRSA at a level substantially in excess of the initial AE contribution rates.
It would not be in the best interests of most employees already contributing to PRSAs to terminate and move to the AE scheme.
Some AE scheme obligations on employers should be modified for SMEs who will likely comprise the majority of employers contributing to the AE scheme, as the draft Bill seem to be designed only with large financially sound employers in mind • Where an employee voluntarily opts to join AE scheme, when not compelled to do so on age or earnings grounds, the employer should not be compelled to contribute a matching contribution to what is essentially a discretionary financial planning decision by the employee.
• Provision should be made for SME employers to suspend their AE contributions in certain specified circumstances for a temporary period, where the employee has not suspended their contribution, e.g.

in times of financial difficulties like Covid etc.


| Page 2 of 11 Brokers Ireland 23rd November 2022 It isn’t equitable that the option to suspend AE contributions rests only with the employee; SME employers’ obligation to contribute should be subject to an ability to pay, even if their employees continue to contribute to the AE scheme.
• The obligation on an SME employer to ‘accurately’ calculate AE contributions for an employee (subject to sanction if they fail to do so) should be qualified by reference to the relevant information about the employee and their earnings reasonably available to the employer at that time.
• In terms of penalties and enforcement of non-remittance of AE contributions, a differentiation should be made between employee contributions deducted by the employer and not remitted to the CPA, and the non-remittance of employer contribution by an SME employer to the CPA because of cash flow trading difficulties.

• an SME employer should not be subject to sanction by CPA for failure to deliver requested details, if they have made ‘best efforts’ to do so.
• An SME employer should not be required to provide ALL documents, accounts, etc, about their business demanded by the CPA, but rather be required to submit to the CPA only those documents, accounts etc.

relevant to the issue of calculation and remittance of their employees’ AE contributions.

• All employers should have the right of appeal to the Courts where the CPA imposes a sanction on the employer for noncompliance with the terms of the AE scheme.

The current draft Bill contains no right of appeal.
AE participant should be able to refer complaints to the Ombudsman at an earlier stage • AE participants should be able to refer complaints about the CPA directly to the Financial Services and Pensions Ombudsman; the draft Bill currently envisages the CPA acting as judge and jury on its own complaints from AE participants with reference of a complaint to the Ombudsman only possible after a failed appeals process within the CPA.
Taking and taxation of AE scheme benefits by employees There are aspects of the draft Bill in relation to the taking and taxation of AE scheme benefits which are either vague or contradictory and/or inconsistent with existing pension products such as the PRSA: • Definition of ill health when benefits can be taken early.

The definition of ill health in Head 61 and the definition in the Explanatory Note in Head 61 are different and contradict each other.
| Page 3 of 11 Brokers Ireland 23rd November 2022 • A specified minimum age to access AE benefits of State Pension Age, currently 66, when all other pension product benefits can be taken at least from age 60.

See Head 57.

• Inconsistencies between the Heads and corresponding Explanatory Notes on how AE benefits can be taken at retirement as between 100% as a tax free lump sum or 25% as a tax free lump sum and balance as taxable benefits?
• Confusion over how the AE fund payable on death before benefits have been taken is to be taxed.

| Page 4 of 11 Brokers Ireland 23rd November 2022 Detailed comments on various Heads of the Bill Head 2 – Interpretation Comment The name of the CPA should be changed to a name more appropriate to the range of functions specified, as the functions set out in Head 15 extend far beyond mere administrative ‘processing’ activities.
Definition of ‘qualifying occupational pension scheme’ should be extended to include an employer PRSA scheme referred to in s121(1) Pensions Act 1990, to avoid such PRSA schemes having to wind up and employees transfer to the AE scheme, possibly at a reduced contribution rate.
4 – Criteria for automatic enrolment (1) Change the prescribed minimum automatic enrolment age of 23 to [State Pension Age less 40], (currently 26) in order to: • Exempt from enrolment those who may be entering full time employment for the first time, and need a period to establish a consistent earnings pattern; • Exempt from enrolment third level students (under 26) who may be working to support their education; and • Align with the 40 year working life period adopted by the Aggregated Contributions Method used since March 2018 to determine the rate of State Pension Contributory payable to a retiree.
(1) Amend the prescribed upper automatic enrolment age of 60 to [State Pension Age less 10], (currently 56) to ensure a minimum 10 year contribution period and hence the accumulation of a meaningful fund at retirement.

(1) Change the reference of €20,000 to a defined % of gross average earnings, to be restated each year, in order to future proof the minimum income threshold for enrolment.
(2) see comments on Head 2 above re definition of ‘qualifying occupational pension scheme’ for exclusion from automatic enrolment, to include existing PRSA schemes where the employer and employee are actively contributing at a level at least equivalent to the initial AE contribution rates.
| Page 5 of 11 Brokers Ireland 23rd November 2022 Head 6 – Voluntary participation – right to opt in Comment (3) Where an employee voluntarily opts to join AE scheme, when not compelled to do so automatically on age and earnings grounds, an employer should not be compelled to contribute a matching contribution.
9 – Rate of Contribution Head 10 – Opt out and suspension (2)(c) Change the reference of €80,000 to a defined % of gross average earnings, to be restated each year, in order to future proof the maximum income threshold for matching employer contributions and not be not fixed in monetary.

(2)(d) Needs to also include provision for income tax relief for sole traders and partnerships making AE contributions in respect of their employees.

Currently restricted only to company contributions?
(1) & (2) Opt out circumstances should also include a mandatory ‘cooling off’ period of 30 days (specified by law for many financial contracts) within which an employee who was enrolled or automatically re-enrolled into AE, can opt out and receive a return of their contributions paid during the period of enrolment or automatic re-enrolment, without penalty.
The cooling off period would allow opt out for those who did not realise they were joining the AE scheme or accidentally joined the scheme or were incorrectly joined by their employer, and those who changed their mind shortly after joining the AE scheme.
(5) The Minister should be given power by regulations to vary the opt out periods specified in (1) & (2) Head 11 – Suspensions (1) & (2) Provision should be made for SME employers to suspend specified contributions circumstances for a temporary period, i.e.

an inability to pay, where the employee has not suspended their contribution.

their AE certain in Suspension of contributions shouldn’t be an option for the employee only.

SMEs may experience trading difficulties from time to time (e.g.
Covid or economic down turn) with an inability to pay the employer AE contributions, and hence for periods may need to suspend their contributions to help them survive.

During a period of employer suspension of contributions, the employee and State contributions should continue unless the employee opts out if allowed.

| Page 6 of 11 Brokers Ireland 23rd November 2022 Head Head 12 – Effect of opt-out and suspension on contributions Comment (1) and (2).
By allowing employees to opt out following enrolment or re-enrolment and receive a full refund of their own contributions paid while enrolled, but still benefit from employer and State contributions, a moral hazard arises where an employee could continuously enrol and opt opt, receiving a full refund of their own contributions each time but continuing to benefit from employer and State contributions paid while they were enrolled.
(4) Therefore, in the circumstances of (1) and (2) employer contributions paid from the date of enrolment to opt out should be refunded to the employer, where employee contributions are refunded.

Head 15 - Responsibilities and functions of the Central Processing Authority (1) As the CPA will be the custodian of employee AE savings, it should be subject to authorisation and regulation by the Central Bank of Ireland in respect of its custodian services.
(2) Strict legal segregation should be enforced between the AE scheme Fund assets and the CPA’s own assets and resources.

Head 16 Board of Directors Head 21 Expenses of the CPA (4)(k) The CPA function of offering of ‘retirement products’ to AE participants should be qualified as being subject to the provision of appropriate advice to AE participants on such products by independent advisers.
in (1)(b) membership should also include at least one member with the provision of relevant experience and expertise independent advice to consumers on retirement products and retirement planning.

(12) membership should specifically exclude individuals who work for, or worked for in the past, a current service provider to the CPA or worked for a group of which a current service provider is a member.
The cost of servicing the Exchequer loan to the CPA should be specified as at ‘commercial terms’ in order to ensure fair competition with commercial providers of alternative (to the AE scheme) retirement savings products.

There should be legal ring fencing of AE participants savings from CPA funds so that repayment of the Exchequer loan can never be made from AE participants savings.
| Page 7 of 11 Brokers Ireland 23rd November 2022 Head Head 25 Obligation of employer to pay and remit employee and employer Contributions Head 43 Information to be given upon auto- enrolment Comment The term ‘accurately’ in relation to an employer’s responsibility to calculate AE contributions, should be qualified by reference to the relevant information about the employee and their earnings readily available to the employer at that time.

E.g.
E.g.

an employer may not know what other employments a transient party time work has or had and what the employee earns in those other employments.

.

This should also apply on re-enrolment.

Head 44 My AE The compulsory requirement for a MyGovID to access My AEm should be modified to cater for those who cannot or will not acquire a MyGovID.
Head 46 Advice – provisions to be set by Ministerial order Head 48 Central Processing Authority right to make enquiries It shouldn’t be compulsory for an employee to have a MyGovID to electronically access information on their AE savings.
A participant’s interest in the AE fund should be prescribed as an investment instrument under the Investment Intermediaries Act 1995 and hence those advising participants on their AE investment choices, benefit options, etc., should be authorised by the Central Bank of Ireland, fit and proper persons, have adequate Professional Indemnity Insurance cover, and be regulated by the Central Bank of Ireland.
Provision should therefore be made for the provision of advice to an AE participant by a regulated intermediary appointed by the employee or employer or the CPA.

The CPA is unlikely to be competent to advise AE participants directly.

(2) an employer, particularly an SME, should not be subject to sanction by CPA for failure to deliver requested details, if they have made ‘best efforts’ to do so.

(2) contains regulatory ‘overeach’ by allowing the CPA to demand ALL accounts, books, documents, etc.
relating to the employer’s trade or profession, and not just documents etc.

relevant to a liability in relation to the employer’s obligations under the AE scheme.

| Page 8 of 11 Brokers Ireland 23rd November 2022 Head Head 50 Penalties for breach of obligations Comment Sanctions and fines to be imposed by the CPA on employers for non compliance should not apply where the employer has been unable for reasons outside of their control, to comply.
Provision also needs to be inserted to allow employers to appeal a CPA imposed sanction or penalty to the Courts, which should be a basic right.

Head 51 Recovery of contributions not paid (5) The imposition of a 10% interest charge on the employer in respect of unpaid contributions is a penal rate, when combined with the non deduction of the interest as an expense for tax purposes.
A differentiation should be made in respect of non-remittance by the employer of AE contributions as between employee contributions deducted by the employer but not remitted to the CPA by the employer, and the non-remittance of employer AE contributions because of cash flow trading difficulties.

SMEs may experience temporary financial difficulties and the imposition of a penal interest rate for late payment of employer contributions may tip some over the edge into insolvency.
(6) The employer ‘name and shame’ provisions are extreme and should leave some leeway for non-publication in genuine cases where the employer has made best effort to comply.

There should also be an incentive for employers to pay up unpaid contributions within a certain period, during which name and shame would not apply.

Head 52 Making of complaints (1) The topics which a participant make a complaint to the CPA should also include the provision of advice by the CPA to a participant.

(See Head 46).
(See Head 46).

Head 53 Complaints process and Head 54 Appeals against complaint decision In effect the CPA will be the judge and jury on any complaint submitted to it by an AE participant, with only a right of appeal to the Financial Services and Pensions Ombudsman following unsuccessful appeals process within the CPA.
It is important to provide an independent means of considering, resolving and enforcing decisions related to an AE participant’s complaint, by providing for complaints above a defined certain threshold to be referred to the Financial Services and Pensions Ombudsman for adjudication.
| Page 9 of 11 Brokers Ireland 23rd November 2022 Head Head 57 Access to funds aligned with the State Pension Age Head 58 Provision of a lump sum Comment Head 53(1): the time limit for submission of complaints to the CPA of 2 years from the date of the conduct giving rise to the complaint time is far shorter than the standard minimum period of 6 years for submission of consumer complaints about financial services providers to the Financial Services and Pensions Ombudsman.
The time limit period for submission of complaints to the CPA should be aligned with the time limits applicable to consumers making a complaint to the Financial Services and Pensions Ombudsman about the conduct of a financial services provider.

Aligning normal access to AE savings at the State Pension Age puts the AE scheme at odds with other retirement savings schemes and products where in general access to funds it allowed from at least 60 onwards (or from 50 onwards in some cases).
Therefore, the minimum AE scheme access age should be 60.

Envisages AE funds being paid out at retirement as a lump sum, for an initial period of the AE scheme, taxed under s790AA TCA 1997.

For many AE participants this will mean 100% payment of their savings at retirement as a tax free lump sum, which will not provide a retirement income and may indeed lead to some participants spending the full fund within a short period.
This is at odds with the way benefits can be taken from all other existing defined contribution retirement benefit schemes and products, where only 25% of the fund can be taken as a lump sum under s790AA and the balance, if not used not to provide a retirement income, is taxed under PAYE.
To provide a more favourable tax treatment to AE funds on retirement than applies to other retirement benefit schemes and products will cause unnecessary anomalies and benefit arbitraging in the pensions market place between the AE scheme and other arrangements.

Therefore Head 58 should provide for the same benefit options as apply to PRSAs currently, from day 1.
Head 60 Payments in the event of the death of a participant This Head is completely unclear as to how an AE participant’s accumulated fund is to be treated for tax purposes on death, by suggesting that it will both be subject to PAYE but also implying that it might be taxed as if paid to the AE participant on retirement and hence potentially tax free?
| Page 10 of 11 Brokers Ireland 23rd November 2022 Head Comment Either proposal is at odds with the treatment of current pension products like the PRSA and RAC, where on death before benefits are drawn, the full accumulated fund is paid out to the deceased’s estate tax free.
The AE scheme should adopt a similar approach as otherwise death in the AE scheme before benefits are taken would impose a financial tax penalty on next of kin, which would not apply if the AE participant survived to retirement to take their AE funds or if they had saved for retirement through a PRSA product.
Head 61 Early access to savings – illness The terms of the Head and the Explanatory Note contradict each other as to the definition of ‘ill health which should be used to allow access to AE funds before the minimum access age.
The proposed method of payment, 100% as a lump sum which for many will be tax free, is at odds with the treatment of current pension products like the PRSA and RAC, where on ill health like retirement 25% of the fund is payable as a tax free lump sum and the balance provides taxable benefits.

Head 64 The maximum direct cost charge to the participant to be capped The current Head 64 is silent on what the maximum level of charge will be?
Also it is silent on how ‘charges’ will be determined for this purpose.

For example, will the charge include investment transaction costs with the relevant investment funds?

Head 66 Transfer of existing pension funds into the AE system The draft Bill does not deal with the potential to transfer AE funds to other pension arrangements, e.g.
where an individual leaves one employment where they were a member of the AE scheme, and moves to another employment where the employer operates a compulsory DC occupational pension scheme which qualifies for AE opt out.

Such an employee should be able to bring their AE fund with them to their new DC scheme.

Head 67 Amendments to the Taxes Consolidation Act (5) reference to taxing AE benefits under s787G is contradictory to earlier Head 58.
Also the references in (5) to s787G and s790AA in relation to taxation of AE retirement benefits is confusing as s787G and s790AA amount to two different ways of taxing retirement benefits.

| Page 11 of 11 Brokers Ireland 23rd November 2022