Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697803783623.pdf (Ireland)
General Scheme of the Automatic Enrolment Retirement Savings System for Ireland Bill 2022 SUBMISSION IN RESPECT OF THE PRE-LEGISLATIVE SCRUTINY OF THE BILL Social Justice Ireland December 2022 Introduction ............................................................................................................................................ 2 Contents Submission .............................................................................................................................................. 2 Purpose of System .............................................................................................................................. 2 Specific Elements of the General Scheme of the Automatic Enrolment Retirement Savings System for Ireland Bill 2022 ............................................................................................................................. 3 Part 2 ............................................................................................................................................... 3 Part 3 ............................................................................................................................................... 4 Part 5 ............................................................................................................................................... 4 Part 6 ............................................................................................................................................... 5 Part 11 ............................................................................................................................................. 5 Part 12 ............................................................................................................................................. 5 Part 14 ............................................................................................................................................. 5 Part 18 ............................................................................................................................................. 6 Part 19 ............................................................................................................................................. 6 Conclusion ............................................................................................................................................... 7 1 | P a g e Social Justice Ireland December 2022 Introduction Social Justice Ireland welcomes this opportunity to make a submission in respect of the pre-legislative scrutiny of the General Scheme of the Automatic Enrolment Retirement Savings System for Ireland Bill 2022.
Given the disproportionate impact that cost of living pressures are having on older people, with those aged 65+ experiencing higher rates of inflation than the general population and more than one in ten people in this age group experiencing enforced deprivation in 2022, it is crucial that any reforms to the pension system balance current pressures on income adequacy with future needs.

The focus should be on the best possible outcomes for Ireland’s citizenry in their old age.
This submission is Social Justice Ireland’s contribution to ensuring that decisions are made based on these aims.

We would be happy to discuss this submission in further detail with the Department at any stage.
Submission Purpose of System The most recent Government green paper on pensions (published in 2007) states that the objectives of the Irish pension system are: • • • • To provide an adequate basic standard of living through direct State supports; To encourage people to make supplementary pension provision so that they may have an adequate income in retirement; Sustainability; Modernisation.
While the economic climate in which the Green Paper was published has changed considerably, these aims should still hold, particularly the first.
We would emphasise that the main focus of the broader pension system should be on: • • • • the need for universality; the need for income adequacy in retirement; the need for a system that recognises the contribution of all to society, not just those engaged in paid employment; the fact that that a universal first pillar (the state pension) at an adequate level would provide a solid base on which to build supplementary coverage and reduce the pressure on the private pensions industry.
In 2018, Social Justice Ireland published ‘A Universal State Social Welfare Pension’, an analysis of Ireland’s pension system and a fully costed proposal for the introduction of a Universal Pension in Ireland based on residency, not social insurance contributions.
In it, we propose three key adjustments to the present system: On equity: ensure every older person who has been resident in Ireland will receive a full pension payment (unlike the current system or the Government’s proposed new system, both of which leave large numbers of older people with only partial or no pension).
2 | P a g e Social Justice Ireland December 2022 On sustainability: make the system more sustainable by standard rating employee contributions to private pensions (unlike the current system which gives tax relief at the marginal rate which results in the major benefits going to the higher paid).

On bureaucracy: dramatically reduce the bureaucracy by having only one test for accessing the payment and eliminating the myriad of conditions that are part of the current or the Government’s proposed systems.
With an ageing population and the number of people in defined benefit schemes falling, the shortcomings in Ireland’s pension system need to be addressed urgently.

his, apparently, is not for moving.

The proposed scheme is intended to bolster the contribution private pension savings plans make to retirement adequacy.
This will result in an estimated cost to Government of €650m-€700m per annum, on top of the billions of euros in revenue already being foregone by the Exchequer on an annual basis to subsidise the private pension industry.

One of the ways in which a lack of fairness has long permeated the Irish pension system is the manner in which entitlement to a pension from the State has been based on social insurance contributions.
This ties pension entitlements to an individual's labour market participation history and has historically resulted in lower pensions (and sometimes no pensions at all) for people (mainly women) who have spent long periods away from the labour force raising families or caring for elderly family members.

Although we acknowledge recent progress to address this, Social Justice Ireland’s proposal shows how to fund a Universal Pension System based on residency.
This would replace all other social welfare pension payments and would be funded by a restructuring of the tax relief system on private pensions and a modest increase in Employer PRSI.

This is the best way to achieve a fairer and more equal Ireland.

It is proposed that the Universal Pension would start at €265.30 a week, the same as the current State Pension (contributory).
It would be residency based, meaning that the more working-age years a person is resident in Ireland, the higher the percentage of the full pension they receive.

40 years of residency between the age of 16 and the State Pension Age would entitle a person to the full amount.

There would be two primary mechanisms to fund the cost of this provision.

First, reducing the rate of tax relief on private pensions from 40 per cent to 20 per cent and second increasing employers PRSI by 0.5 per cent.
The study goes on to argue that the social welfare pension should rise to 35 per cent of average earnings and be maintained at that level in the decades ahead.

The study projects the numbers forward to 2046.

Specific Elements of the General Scheme of the Automatic Enrolment Retirement Savings System for Ireland Bill 2022 Part 2 Head 4 refers to the lower threshold for participation of a gross salary of €20,000 per annum.
In 2023, the rate of the National Minimum Wage will be €11.30 per hour, or €22,995.73 gross annually for a 39-hour week.

Therefore, every employee in full-time employment and being paid the National Minimum Wage will be included in the scheme.

3 | P a g e Social Justice Ireland December 2022 If we apply the rate of the Living Wage for a single adult, as calculated by the Living Wage Technical Group1, of €13.85 per hour, this equates to €28,185.03 gross per annum for a 39-hour week.
This is the amount of money a single person would need to earn to afford a reasonable, if subsistence, standard of living.

An increase in consumer spending post-Covid, the pandemic-related supply-chain disruption, and the impact of Russia’s invasion of Ukraine have all contributed to a spike in inflation over the past year, with the cost of all goods and services increasing by 9.2 per cent in the year to October 20222.
Research by the Central Bank of Ireland3 and the Central Statistics Office4 has found that households in the bottom 20 per cent of the income distribution have a higher rate of inflation than the national average and are therefore disproportionately impacted by increases in the cost of living.

Requiring additional deductions from the minimum cost of living which is the Living Wage at a time when those on the lowest incomes experience the highest inflation is at odds with the principle of equity.
This is reflected in the Explanatory Note accompanying Head 4, which reads: “People on very low incomes, unless they are second earners in a household, generally consume all their income and have little, if any, scope to fund savings.
Although the objective of AE is to increase the level of supplementary savings coverage, it is not considered appropriate to automatically enrol all low-income earners.” We therefore submit that the threshold should be at least €29,000 gross per annum with the existing opt-in provisions for employees on the National Minimum Wage or the Living Wage.

Part 3 The employee contributions detailed in Head 9 assume an increase in incomes over time.
Indeed, the Explanatory Note accompanying Head 9 states “The phasing in employee contributions on a staged basis will allow time for the contribution rate to “bed in” and earnings to adjust before the next increase.” However, not all employment contracts provide for increases.
This is particularly the case for low-paid employees engaged in some forms of community employment, for example the Community Services Programme which set employee costs at the rate of the National Minimum Wage at a point in time and has provided for no pay increases since.
We therefore submit that an “opt-out” or “suspension” of the increase be permitted within the legislation to allow a participant to remain in the scheme with a lower rate of contribution, similar to the mechanisms in place to opt-out or suspend participation in the scheme in its entirety and set out in Part 4.

Part 5 We welcome the establishment of the Central Processing Authority (CPA) with the functions set out in Head 15.
It is our belief that trustees should have a clear detailed understanding of what their obligations are, and there should be a regulatory body with the capacity to assess their compliance and to intervene where necessary.
1 www.livingwage.ie 2 CSO, 2022, Consumer Price Index October 2022 3 Central Bank of Ireland, 2022, Household Characteristics, Irish Inflation and the cost of living 4 CSO, 2022, Estimated Inflation by Household Characteristics March 2022 4 | P a g e Social Justice Ireland December 2022 We therefore submit that the Responsibilities and Functions of the CPA should include an information, education and advisory capacity for trustees, similar to that of the Residential Tenancies Board in respect of landlords.
Part 6 We note the provision in respect of remittance of employee and employer contributions set out in Head 25 and note that, under Head 28, the Revenue Commissioners will be given authority to check if contributions have been paid.

However, these provisions fall short of providing the necessary safeguards and enforcement mechanisms in the event of a breach by employers of their obligations.
We further note, in this regard, Head 48 of Part 12 and the right of the CPA to make enquiries, however this right may be interpreted narrowly to apply to information and documentation only, rather than payments, and does not go far enough.

Head 50 of Part 12 further provides for penalties for non-compliance but does not include reference to safeguards to ensure that employees are not disadvantaged by non-compliance by their employer.
We submit that safeguard and enforcement mechanisms be put in place to protect employees’ pensions in the event of a breach by employers of their obligations under Head 25.

Part 11 We welcome the provision in respect of communication with participants and that both electronic and non-electronic formats will be available (with the latter available upon request) (Head 42).
In light of the intent of the General Scheme of the Automatic Enrolment Retirement Savings System for Ireland Bill 2022 to expand pension coverage to those who may otherwise be unable or reluctant to engage, provision should also be made to ensure that communications are available in Plain English and translated into different languages.

We submit that communications be made available in Plain English and translated.

Part 12 We have commented on Heads 48 and 50 under our comments on Part 6 above.
In addition, however, there should be some mechanism for ensuring that employees are not financially disadvantaged due to the non-compliance of their employer with their obligations.

While we note the penalties set out in Head 50, we submit that restitution to the employee should also be included, commensurate with any uplift in value that the contributions would have achieved had they been invested in accordance with the terms of the scheme.
Part 14 We welcome the expansion of the supervisory powers of the Pensions Authority envisaged by Head 56 and Head 69 of Part 19.

This will go a long way to ensuring that schemes and trustees seeking entry to the pension system are properly structured and have robust governance processes in place.

It is important that scheme trustees are clear on their obligations at the point of entry to the system, with the ultimate aim being increased positive member outcomes.
We submit that the creation of binding codes of practice for trustees, to complement the current range of supervisory and enforcement measures, would increase the Pension Authority’s ability to take effective action in the event of potential risks to pension scheme members.

5 | P a g e Social Justice Ireland December 2022 Part 18 There is no doubt that there are huge economies of scale to be availed of in the pensions industry with regard to charges, if schemes are of a certain size.
Further consideration should be given to encouraging a wider master trust system where smaller schemes can avail of greatly reduced charges by purchasing a package as part of a larger arrangement as envisaged in the notes accompanying Head 69.

Charges would be lower and charging structures simpler.
Such arrangements could assist in resolving the difficulties inherent in the current structure where a proliferation of small schemes paying considerably higher charges than larger schemes – one of the reasons for the inadequacy of so many of the retirement incomes being generated by defined contribution pensions – ultimately erodes the value of the pension received by members, often significantly.
We believe that the master trust model represents, perhaps, the most efficient way to reduce this negative effect by way of creating economies of scale for the many small and potentially inefficient pension schemes in operation.

We also believe that the large number of pension schemes in Ireland is unnecessary, given the relatively small size of the country.
Part 19 It is disappointing that the General Scheme of the Automatic Enrolment Retirement Savings System for Ireland Bill 2022 does not take the opportunity to begin the process of much-needed reforms to the tax relief system, as specifically referred in the Explanatory Note to Head 66.
Encouraging private pension coverage is not an ignoble aim, but it should not be done at the expense of ensuring the long-term financial viability of the state pension, nor should it be done in a manner that allows the majority of the benefits to be appropriated by those at the upper end of the income distribution.

Social Justice Ireland believes that a fairer system of tax expenditures would see relief being offered at the standard rate, rather than at the marginal rate.
This would mean that all contributors receive relief at the same rate, regardless of how much they earn, instead of the current unfair system where higher earners receive relief at a higher rate.
Under the General Scheme of the Automatic Enrolment Retirement Savings System for Ireland Bill 2022, not only would the tax relief system not be simplified, it will be further complicated by the addition of a third type of relief – the standard rate for low-income workers who continue with their current pension scheme and do not opt in to Auto Enrolment; the higher rate for high-income workers who continue with their current scheme; and a third relief in the form of the State contribution to participants enrolled in Auto Enrolment scheme, which is higher than the standard rate, but lower than the higher one.
We welcome the expansion of the supervisory powers of the Pensions Authority envisaged by Head 69.

This will go a long way to ensuring that schemes and trustees seeking entry to the pension system are properly structured and have robust governance processes in place.

It is important that scheme trustees are clear on their obligations at the point of entry to the system, with the ultimate aim being increased positive member outcomes.
6 | P a g e Social Justice Ireland December 2022 We further submit that the creation of binding codes of practice for trustees, to complement the current range of supervisory and enforcement measures, would increase the Pension Authority’s ability to take effective action in the event of potential risks to pension scheme members.
Conclusion While a well-regulated and efficiently structured private pension system is key to assisting in income replacement in retirement for many people in the workplace, it should not be forgotten that this system appropriates a significant proportion of the exchequer expenditure – via a system of generous tax reliefs or tax expenditures – on the overall pension system.
Social Justice Ireland believes that the most important things to remember are: • • That pensions were originally instituted as a means to alleviate poverty in old age; That no other payment or policy tool has a greater effect on the old-age at-risk-of- poverty rate than the state pension.
The money saved by the exchequer could be used to fund a universal state pension, removing the current anomaly whereby many people do not have independent claim to a state benefit in old age and in many cases do not receive a payment at all.

Approximately two thirds of these people are women, highlighting the gendered nature of the inequity within the system.

A universal payment would recognise the contribution of all to society, not just those engaged in paid work.
While improvements have been made to the calculation method in recent years, there is still plenty of evidence that the system’s reliance on social insurance contributions and means tests creates inconsistencies and discriminates against people who have spent much of their working lives doing socially and economically imperative work that happens to go unpaid.
Given the importance of pensions as a poverty reliever, a balance must be struck between adequacy of the benefit provided and the long-term viability of the system.

Social Justice Ireland would advocate a reallocation of money within the system; from the tax expenditures currently being expended on encouraging private pensions coverage to increasing coverage of the state pension and bringing this payment to an amount that would sustain an elderly person.
We believe it is the state’s responsibility is to ensure life in old-age can be lived with dignity, but it is not to replace income in retirement, particularly for those at the higher end of the income distribution.

While the state should also encourage people to save privately for their own retirement, this should not be done at the expense of the creation of an adequate and sustainable state pension.
7 | P a g e Social Justice Ireland December 2022 Social Justice Ireland is an independent think-tank and justice advocacy organisation of individuals and groups throughout Ireland who are committed to working to build a just society where human rights are respected, human dignity is protected, human development is facilitated and the environment is respected and protected.
8 | P a g e Social Justice Ireland , 1-3 Burton Hall Road, Sandyford, Dublin 18 D18 A094 Phone: 01 290 3597 Email: secretary@socialjustice.ie Charity Number: CHY 19486 Registered Charity Number: www.socialjustice.ie 20076481