AE Debates in Oireachtas

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TheJackal

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Automatic Enrolment Retirement Savings System Bill: Discussion

Dec 7, 2022 ICTU

Joint Committee on Social Protection, Community and Rural Development and the Islands debate - Wednesday, 7 Dec 2022

General Scheme of the Automatic Enrolment Retirement Savings System Bill: Discussion Joint Committee on Social Protection, Community and Rural Development and the Islands debate - Wednesday, 7 Dec 2022
www.oireachtas.ie

Dec 14, 2022 Dept of Social Protection

Joint Committee on Social Protection, Community and Rural Development and the Islands debate - Wednesday, 14 Dec 2022

General Scheme of the Automatic Enrolment Retirement Savings Scheme Bill: Discussion (Resumed) Joint Committee on Social Protection, Community and Rural Development and the Islands debate - Wednesday, 14 Dec 2022
www.oireachtas.ie

Jan 18, 2022 Irish Life and The Pension Authority

Joint Committee on Social Protection, Community and Rural Development and the Islands debate - Wednesday, 18 Jan 2023

Joint Committee on Social Protection, Community and Rural Development and the Islands debate - Wednesday, 18 Jan 2023
www.oireachtas.ie
 
IBEC were on this morning, moaning about the admin overheads of the scheme. Eamon O'Cuív was not convinced, and asked for a note on how the Brits were coping (Dev must be spinning!).
 
Whatever about the investment issues (as discussed widely re Colm Fagan's proposal) the big challenge was always going to be setting up a new administration/record keeping system from scratch, catering for
- increasing and decreasing contributions
- changing investment mix decisions (unless they adopt Colm's single fund proposal)
- changing employment
- opting in or opting out
- etc etc
Insurance companies have spend decades (and many millions) developing flexible administration systems. I cannot see the Government developing the necessary structures by the end of this year.
The systems already exist (via a number of different insurers) , so perhaps its worth asking why not piggyback on what's there already. Otherwise AE will face more delays before being introduced. The UK NEST system is a lesson to learn from (in terms of the costs involved in establishing a system from scratch).
 
I agree with the DOF that the timeline for setting this up and more seriously its financial viability are challenging (which I think is the usual euphemism for impossible).
But I think the role of the CPA is being a bit overplayed in this context. They will not be starting from scratch. They will be very heavy outsourcers of both investment and admin to existing infrastructure, though I agree that some aspects such as the pot travelling with the punter will be new.
 
Duggan vs OCuiv bunfight over tax relief begins at 45 mins. Duggan bullies the deputy who sticks to his guns and is right.
OCuiv argues for a 40% taxpayer as follows:
Assume invest 100 of gross salary in a conventional pension, then she gets 100 of a fund
If she invests the net 60 in an AE she gets 80 of a fund. (1 in 3 top up = 20) - effectively only 20% tax relief on gross income
Duggan argues back that his math is wrong and he is not allowing for all the moving parts. He gives his own prepared example. He has lots of moving parts but the bottom line is as follows.
If you want 80 in the pot this will cost you 60 from net pay in AE but 48 in a conventional pension - what's the big deal?
OCuiv correctly accuses him of playing a 3 card trick.
 
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Duggan having conceded that 40% tax payers would be better off in conventional rather than AE then trivialises it by suggesting very few would be affected and the difference would be trivial anyway. He also argued (I am not sure on what authority) that Government were insistent that the revenue subsidy for AE contributions should be an equal percentage of net pay across all income levels.
Anybody earning between €49k (standard rate cut off) and €80k will get 20% tax relief on AE and 40% on conventional. This is not a trivial constituency and definitely not a trivial difference in tax relief.
If this is not changed AE will be mired in controversy from day one.
 
Duggan's example:

AE scheme
1,000 gross income
-40% income tax
600 net

Pays 6% x 1000 income into AE = 60.
This 60 then gets a free 1/3 from Govt = 20

So ends up with
540 net in hand + 80 in AE scheme

OP scheme
1,000 gross income
Pays 80 into OP scheme
So 920 taxable
-40% income tax
552 net

So ends up with
552 net in hand + 80 in OP scheme
 
O'Cuiv's example:

AE scheme
1000 gross income (he said 100 but we'll go with 1000 to compare to Duggan's example)
-40% income tax
600 net
Pays 6% x 1000 income into AE = 60.
This 60 then gets a free 1/3 from Govt = 20

So ends up with
540 net in hand + 80 in AE scheme

OP scheme
1000 gross income (he said 100 but we'll go with 1000 to compare to Duggan's example)
Pays 1000 into OP scheme
So 0 taxable
-40% income tax
0 net

So ends up with
0 net in hand + 1000 in OP scheme


So both are correct with how they explain it
Duggan goes for a like for like approach: if both want to have 80 of their 1,000 income in their AE/OP at the end, then OP was better off by €12 or 1.2%
O'Cuiv takes the full amount that can get tax relief: so OP here better off by €380 or 38%

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Don't forget with with AE the employer also has to contribute to the pension, but not with OP.
Don't be holding your breath if you expect AE by 2024!
 
Towger said:
Don't forget with with AE the employer also has to contribute to the pension, but not with OP.
Click to expand...

They don't have to pay into a PRSA Scheme but, unless they're covering the costs of establishment and ongoing operation of an Occupational Pension Scheme (in addition to meeting the costs of the provision of death in service benefits under the scheme), they have to pay 10% of the total ordinary annual contributions.

Gerard

www.prsa.ie
 
I missed this and yes both examples illustrate the same 25% anomaly.
Under OCuiv's example for the same surrender of 60 take home pay OP gives a 100 fund which is 25% more than 80 under AE,
Under Duggan's example to get the same 80 fund it would cost 60 under AE which is 25% more than the 48 it would cost under OP.
OCuiv had produced his example the week before though he erroneously said the AE top up on 60 was 15 rather than 20. Duggan had come prepared to humiliate OCuiv with his error and to produce a more complicated example to show how OCuiv was missing all the moving parts. But OCuiv had in the mean time corrected his error and Duggan didn't notice this and proceeded with his prepared put-down of OCuiv's maths and "simplistic" approach.
In a very arrogant manner he eventually "conceded" that OP was superior in that vary rare situation and only by a teeny amount.
For clarity the anomaly amounts to a 25% advantage of OP over AE for all incomes over €49k and thus for the band between €49k and €80k covered by AE.
Many eligible employees will be in this band already or aspire/expect to be so in the future. The pensions industry will have a field day persuading employers to establish at least an OP alternative to AE.
 
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