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25 November 2022 Submission to Joint Committee on Social Protection, Community and Rural Development and the Islands Leinster House Kildare Street Dublin D02 XR20 spcri@oireachtas.ie Private and Confidential Pre-Legislative Scrutiny Submission – General Scheme of the Auto Enrolment Retirement Savings Scheme and Heads of Bill (the “General Scheme”) The Association of Pension Lawyers in Ireland (the “APLI”) welcomes the introduction of an auto enrolment retirement savings scheme (“AE”) which will be an important development in securing pension provision for an additional 750,000 savers.
There are several points which the Committee might kindly consider: 1.

Charges From a member’s perspective, no clarity has been provided regarding the setting of maximum annual charge that may be payable, set by the Minister, which will fund the day to day running of the Central Processing Authority (“CPA”) and AE itself.

It appears that running costs will be supplemented by a loan from the State to the CPA.
The General Scheme notes that the Minister will set the charging structure and that the costs of servicing the loan will become part of the operating costs to be paid by savers, clarification would be welcome that such a loan arrangement complies with requirements at both national and EU level regarding loans or subsidies being made available to the CPA.

2.

Tax issues a.
2.

Tax issues a.

Issues from an employee and employer perspective From both a member and employee perspective, it occurs to the APLI that many employers are likely to have parallel pension arrangements in place following the introduction of AE, with two different tax regimes and the possibility for tax arbitrage arises for employers and employees.
Employees will be excluded from AE where they actively participate in an occupational pension scheme of their employer (the position regarding deferred members who no longer actively participate or members who have reached occupational pension scheme retirement age but not State pension age and remain in service is unclear) but the exemption applies only to that particular employment and not to any other employment they may have.
1 Employees may have parallel pension arrangements and there is the risk that employees may cease contributing to existing occupational pension schemes if the tax regime applying to AE is more favourable.

Further, employers’ HR functions are likely to be under additional pressure to facilitate contributions to two separate savings schemes.

b.

Tax relief Head 67 Subhead 5 provides for the payments from AE to be taxed as under PAYE provisions.
It also provides for the application of the lifetime tax-free limit of €200,000 on all retirement lump sums paid to an individual through AE.

Amounts in excess of this tax-free limit (the “excess lump sum”) are subject to tax in two stages.

The portion between €200,000 and €500,000 is taxed at the standard rate of tax while any portion above that is taxed at the individual’s marginal rate of tax.
This represents a significant departure from the current calculation of Revenue Maximum Tax-Free Cash which would apply to members of occupational pension schemes.

We appreciate the simplification this will bring to administering and communicating the retirement benefits of those who come to retirement during the early years of AE.

However, if a tax-free lump sum of €200,000 is introduced within the AE system, this will contribute to two pension systems operating against each other.
At various salary levels and once contributions into AE have reached their maximum, members could theoretically increase their lump sum by transferring into AE for long enough to accumulate the projected €200,000.

Then, this member would transfer back into their employer’s occupational pension plan.

This would of course, introduce additional administrative complexities for all stakeholders in both AE and occupational pension plans.
Careful consideration must be given to how this will work alongside current Revenue Maximum Tax-Free cash rules for members in all types of plans (DC occupational, DB, hybrid) and at various retirement account values.

c. Applicable legislative provisions In addition, Head 67 looks to two different Chapters of Part 30 of the Taxes Consolidation Act, 1997 (“TCA”).
The tax on drawdown is drawn from the PRSA regime in Chapter 2 of Part 30 but the relief/no relief provisions are from Chapter 1 which applies to occupational pension schemes.

AE is neither a PRSA nor an occupational pension scheme and without amendment of the Pensions Act and TCA is not capable of being either.

It appears to the APLI that it is inconsistent to seek to apply reliefs from one (inapplicable) Chapter and then impose tax by reference to an equally inapplicable Chapter.
If AE is from a policy perspective to be treated as analogous to a PRSA then the relevant references in Head 67(1) and (2) on contribution relief should be to 787E(1) and (2) respectively (noting that none of these sections are applicable).

It would also appear that references may be required to 787O 787RA and 790AA of the TCA unless it is intended that there would be two tax relieved sums available and that AE proceeds do not count towards scheme benefit crystallisation events.

2 3.
2 3.

Contributions Sub Head 1 of Head 9 does not confirm that contributions will be calculated on the earnings of the employee up to €80,000.

This is however, confirmed in sub-Head 2 and 3 relating to the employer and State contributions.

Our interpretation is that this implies that there is no earnings limit over which employees will cease to contribute to AE.
It is unclear whether this is an omission or whether employee contributions would continue earnings over €80,000 and clarification on this point will be required.

4.

Proposed Structure It would be preferable if clarity could be provided in relation to the structure of the auto enrolment scheme itself e.g., will it be structured as a trust, will the board of the CPA act as trustees ensuring compliance with the obligations that go with its purported status as IORP?
What will the role of the Pensions Authority be as regulator of the IORP given that the CPA reports to the Minister?

As it stands apart from Part VII it would not appear that any part of the Pensions Act 1990 applies.

This means that the European Union (Occupational Pension Scheme) Regulations, 2021 (the “IORP II Regulations”) also do not apply since neither the AE scheme nor the CPA are a “scheme or trust RAC” for the purposes of Regulation 3 of the IORP II Regulations.

5.
5.

Interpretation issues a. Definitions: There is no definition of “auto-enrolment retirement savings scheme” (“AERSS”).

Also, this term is not used consistently – e.g., Head 4 refers to “retirement savings scheme” not AERSS.

This means referring to the Pensions Act definition of a “scheme” but that refers to an occupational pension scheme which is defined as a scheme which has or is capable of getting Revenue “approved” status.
Our understanding is that the AERSS will not have such status as the AERSS tax regime will be totally separate from that of approved schemes.

b.

Consistency: Head 2 refers to a defined term “auto-enrolment retirement savings scheme”.

Head 4 refers to “retirement savings scheme”.

Head 15 refers to the CPA as the custodian of the “auto-enrolment system” (not a defined term) and “AE retirement savings system” (also not a defined term).

Defined terms should be used consistently.

6.


Establishment of AERSS Head 4 apparently refers to “the” retirement savings scheme, but the Bill makes no provision for the establishment of this arrangement.

A pension scheme is not a legal entity in its own right.

Occupational pension schemes are established under trust, but the AERSS does not appear to be an occupational pension scheme.

3 7.
3 7.

Administrative burden associating with those who opt out We note the administrative burden of keeping track of employees who opt-out, re- assess their eligibility to participate, and automatically re-enrol them will rest with the CPA.

This is a significant administrative burden.


We also note that information held by the Revenue Commissioners relating to employers, employees, reckonable earnings, and contributions will be transferred by the Revenue Commissioners to the CPA and clarification would be welcome that GDPR obligations have been considered.

8.
8.

Protection of the Fund from the insolvency of the CPA Head 4 talks about enrolment in the AERSS but makes no provision for its establishment dealing with ownership of the assets invested in the AERSS.

Head 31 refers to holding assets “in custody on behalf of” a saver.

While the CPA is a body corporate it is not the AERSS – the CPA’s assets are not “the Fund” but it would appear that, in the absence of an express declaration of trust in Head 15(3), the Fund is part of the CPA’s assets.
This means that saver assets are exposed to the CPA’s solvency and are available to the CPA to use for staff costs per Head 20(4).

This is not overcome by passing references to “fiduciary” obligations as fiduciaries are entitled to an indemnity and reimbursement for expenses properly incurred.

9.
9.

Additional regulatory complexity The Pensions Act definition of “scheme” would not in our view include the AERSS under the Bill at present leading to a three-tier regulatory system (as the IORP II Regulations do not apply to unfunded public sector schemes – so the Pensions Act applies differently to funded schemes and unfunded public sector schemes).

10.
10.

Outsourcing to administration service providers Our interpretation of the Heads is that the CPA will perform the role of the Registered Administrator for AE, with some elements of administration to be outsourced to administration services providers.

It is unclear what elements of administration will be outsourced, and how the outsourcing will work in practice.

A particular area that requires clarification is how outsourcing will work in conjunction with access (or lack of access) to MyAE.
Furthermore, the issue of how members will be identified in- house between the CPA and outsourced administration providers needs to be clarified.

This is particularly important as external providers will not be designated as Specified Bodies within the meaning of Social Welfare Consolidation Act, 2005 (as amended).

As a result, our understanding is that any outsourced provider will not be permitted to reference members via their PPS number.

11.
11.

Outsourcing of Investment Management Function The approach to outsource the investment management function to up to four registered providers for the initial fund range is welcomed.

We understand the challenge of blending managers and investment strategies in a fiduciary arrangement for pension members.
We recommend that additional clarity is provided on how the Central Processing Authority plans to blend the 4 registered providers into one fund, what kind of investment vehicle the CPA will use and what will be offered to members, details around the tender process, plans to equally weight assets across the 4 providers.
We have set out in the table below more specific drafting comments arising from our review of the General Scheme: 4 Head Issue Comment Suggestion provisions and Related 2 of Definition “mandatory participation period” to “scheme”.

refers undefined No definition of “AERSS” (several Heads) No definition of “Fund” (Head 15) No definition of “individual account” (several Heads) for “scheme” Define the purposes of this Act as including the AERSS and a QOPS (qualifying occupational pension scheme).
Refers to “the scheme” but this is not a defined term and could refer either to “auto-enrolment retirement savings scheme” (which is itself not a defined “qualifying occupational term) or the pension scheme”.

Pensions an “occupational pension scheme” which is one which has TCA approval – this cannot refer to the AERSS (which will not be approved in the same way as an occupational pension scheme).

Under it means Act Definitions several undefined.


are and fundamental concepts are incomplete Define AERSS as the AERSS established under a section which establishes it.

There is no consistency of use of fundamental terms.

A term is required Reference to a PRSA in Head 44 is fundamental new inaccurate.

defined to refer consistently to a saver’s AE account.

Head 60 refers to an “auto-enrolment retirement savings fund” (undefined – and the presumably means individual’s account).
Head 71 refers to an retirement savings account” “auto-enrolment No definition of default “fund” the word “fund” This use of is fundamentally different from the use of the word “Fund”, but neither are defined.

option” “investment Suggest use “investment fund” to or distinguish from the aggregate in savers assets comprised individual which comprise the “Fund”.

accounts 4 7 Use of defined terms Clarify the defined term of the entity into which the employee is enrolled.
Should this be a reference to AERSS or to the establishment of an account.

No reference to persons Certain careers (mainly sporting) cease earlier than State Pension Age.

See Schedule 23A to the TCA (as amended) and section 6.7 of 5 employed short careers in Contributions to AE for those in those professional should also cease at the prescribed earlier ages specified in Schedule 23A of the TCA.

15 Use undefined terms.


of Head 15 refers to “auto-enrolment system”, retirement savings “AE system” and “the Fund”.

Absence of separate of assets from CPA – it appears that saver funds can be used to pay CPA staff see Head 20(4).

31 references No to “Fund” or restricted use in of assets “individual accounts” Explanatory note is incorrect – the AERSS will not be a “DC scheme” for the purposes of the Pensions Act as it “occupational pension is not an scheme” under the Pensions Act.
(See Head 70 which notes that the AERSS is an Occupational Benefit Scheme).

for Term “in custody” – is the CPA a the purposes of depository the Directive (EU) 2016/2341 of European Parliament and of the Council of 14 December 2016 (the “IORP II Directive”) – if so, it is appointed by whom?

is fundamental the It relationship between “Fund”, “individual accounts” and the assets of the CPA.
to set out the 33/34 Ambiguous use the word of “fund” 34 Meaning “risk” of 38 Meaning of “AE retirement savings funds” is used “fund” to an investment strategy or option rather than the “Fund”.

refer to A cash fund is “low risk” for a person nearing retirement and “high risk” (relative to inflation but not relative to capital protection) for a young person.

Risk depends on the circumstances of the employee.


This is not a defined term and may refer either to the “Fund” (Head 15) or or the “investment strategies” 6 the Revenue Pensions Manual.

and that there therefore is no It appears separation of the Fund of AERSS assets from the CPA’s assets no protection of savers assets from the insolvency of or fraud at the CPA.

It would be prudent to include express an establishment of the AERSS as a trust in Head 15.
Include a new Head setting out how the AERSS is established (by statute) as opposed to by contract or by trust and clarifying ownership and distinction between schemes governed by TCA Part 30 and the the Pensions Act and AERSS governed by the Bill.

assets of Suggest use “investment option” or “investment strategy” rather than “fund” to avoid confusion and ambiguity arising from dual use of “fund” (see also Head 2).
Suggest remove references to instead describe “risk” and features - i.e., low return/low volatility/high capital security/short term to retirement vs higher target return/ higher volatility/ lower capital security/ longer term to retirement.

Include a Head dealing with the relationship between individual accounts, the Fund, and the 39 of Meaning “regulated markets” 42 Two-year time limit is too short 43 Provision information of 44 Inaccurate use of “personal retirement savings account” perhaps both?
As drafted the language in Head 39 replicates the existing problem with the definition of “regulated markets” which would prevent the CPA from investing outside the EU (i.e., in UK, US or global investments).

As a significant investor the CPA may well wish to use stock-lending as an option.

Head 52(4)(ii) – pensions claims can take a long time to be noticed.

There is an inconsistency in public policy about pensions limitations (regarding admin errors which are particularly detrimental in a DC context).
The basic period under the Financial Services and Pensions Ombudsman (“FSPO”) legislation is 6 years or 3 years from awareness of the event if longer.

See also comments on Head 52-54 below.

There is a practical issue in the CPA being required to give information on the enrolment administration burden associated with managing information from employers around opt-outs, new joiners, and re- enrolments.
regarding “personal retirement is a specific product savings A retirement account” savings in accordance with Chapter 2A of Part 30 of the TCA.

A different term is required under this Bill to refer to a saver’s individual AE account.

provided CPAs obligation to invest the Fund in “investment strategies or options”.

This is a known issue which we understand is under active consideration by the Pensions Authority.

Consider including stock-lending as a permitted investment activity.
Align with FSPO pensions temporal jurisdiction.

Note practical challenges when regulations.

process preparing Define the account consistently.

EU This portal will need to comply with the accessibility digital visually (e.g., requirements impaired and other disabilities) which ignored by largely are currently for 7 45 Annual benefit statement 52/53 Two years too short complaint timeline is a 54 Appeal timeframe appears short of Grammar section 10(1)(i) 56 57 government and semi-state agencies.
the IORP There are already three different annual benefit statement systems (Pension Benefit Statements “PBS”) – under Part 6, of II Regulations for funded schemes; and Annual Benefit Statements (“ABS”) under the Occupational Pension Schemes (Disclosure of Information) Regulations 2006 (as amended) for unfunded public sector schemes; PRSA disclosure requirements).

Why third system of annual create a benefit increase to confusion?
statements Pension contribution and investment issues often are identified much later in life as the focus comes on the retirement balance.

This period is shorter than the period for complaints about pensions to the FSPO.

There is no reason why the CPA should be given special exemption in this regard given its reach and resources.
It would be prudent to amend the FPSO legislation to confirm that he has jurisdiction of the CPA regarding its operation of the AERSS and that this is “pension” business for the purposes of his dual jurisdiction and that all complaints in connection with AERSS will be addressed by the CPA under its IDRP processes.

Should the CPA be under an obligation to issue its determinations within 3 months of the complaint being made, as with all other pension providers?
A thirty-day appeal against a state body operating in a complex area affecting in most cases a citizen’s most substantial asset and life savings appears too short.

In order to work out whether to appeal a saver is going to need to source and then take advice.

Something has gone wrong with the drafting of this section - to monitor compliance [of what] the AERSS, the CPA, both?

Align statements with either ABSs or PBSs – or PRSA disclosure requirements.

Align with FSPO timescales.


jurisdiction are there no Note still the regulations dealing with pensions the jurisdiction of FSPO since the merger of the offices.

The creation and operation of the CPA will make the absence of these regulations even more problematic.

for an The minimum period appeal should be 6 months.

A fair timeframe is probably a year.

this Is [generally]”?


“monitor compliance Minimum age to for access There is an existing public policy inconsistency with regarding This should reflect the fact that where employment relates to a 8 funds certain professions (s480A TCA and Schedule 23A TCA).

sporting career which is age limited the employee should be allowed access.

Clarify language of explanatory note and Heads to make it clear that the funds are taxed before the estate (as distribution deceased the income employee at his marginal rate).
to of 60 to Reference beneficial entitlement 66 No transfers in around drafting beneficial The entitlement is somewhat confused in Head 60(2) and the explanatory note.

The Heads appear to indicate that the funds will be treated as income of the deceased and taxed accordingly and passed to the estate net of tax (which makes sense).

The explanatory note refers to “distribution to the individual beneficially entitled to the assets in the fund, following the death of the employee…”.
The funds cannot be distributed to someone who is dead, and the individual beneficially entitled following the death is the ultimate recipient of the estate proceeds.

It would be clearer to confirm that there is no possibility of transfers in and is no possibility of transfers out other than to an ARF.

to confirm there that 67 structure Tax confusion Heads (1) and (2) refer to relief by reference to Chapter 1, Part 30 TCA Heads (4) and (5) refer to tax on drawdown by reference to the PRSA regime.
For consistency suggest Heads (1) and (2) refer to 787E, TCA (relief for PRSAs) noting that neither Chapters 1 or 2 apply or are fully appropriate and an additional chapter of TCA Part 30 may be more appropriate.

69 Application of the Pensions Act 70 Equal Pension Treatment Head (5) – reference to both 787E and 787O and 790AA (and perhaps also 787RA) TCA are required.
As the CPA does not meet the criteria for the Pensions Act definition of a “scheme” is not (the AERSS established by the Bill under either a trust or as a separate entity) is not clear that any of the Pensions Act will apply to the AERSS (other than Part VII).
Care will be required to ensure that the age-related exemptions which provide of the contributions without requirement for cessation for 9 an objective justification beyond State Pension Age should apply to the AERSS as the CPA will not be able to legitimate employment provide a related justification since it is not the employer.

10