FF calls on government to allow FTBs to access pensions

Brendan Burgess

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Fianna Fáil Press Office
Willie O’Dea TD
Spokesperson on Employment Affairs & Social Protection

08 November 2019

Auto-enrolment will penalise first-time buyers – O’Dea​



Fianna Fáil Spokesperson on Employment Affairs & Social Protection Willie O’Dea TD has raised concerns that the auto-enrolment pension system, due to come into effect in 2022, will penalise first-time buyers.

O’Dea made the comments after it was revealed that the new system will not include an early-draw down option for a mortgage deposit.

“Fianna Fáil is in principle in favour of an auto-enrolment pension system and recognises the need to implement this kind of system, given the low level of pension coverage among private sector workers in Ireland”, said Deputy O’Dea.

“However, I am deeply concerned that the auto-enrolment system being proposed by Minister Doherty does not contain an early draw-down option for a mortgage deposit. This will make it even more difficult for young people to buy a home, and as a result they will simply opt out of enrolling in a pension.

“Furthermore, owning a home has a significant impact on people’s financial well-being in retirement and I think that the Minister is being very short-sighted in this regard. Failure to adequately address this issue now is only storing up problems for the future and creating conditions whereby people may have no other option but to pay rent in retirement. This simply does not make financial sense.

“I am therefore calling on Minister Doherty to rethink the design of the auto-enrolment pension and, at the very least, consider a limited draw down option. Buying a home in Ireland is difficult enough and the government should not actively put in place policies that make this process even more challenging”.
 
________________________________________
For Written Answer on : 06/11/2019
Question Number(s): 201 Question Reference(s): 45597/19
Department: Employment Affairs and Social Protection
Asked by: Willie O'Dea T.D.
__________________________________________


QUESTION
To ask the Minister for Employment Affairs and Social Protection if her plans for auto-enrolment will include an early drawdown option for a
mortgage deposit; and if she will make a statement on the matter.

REPLY

I am pleased that the Government recently approved significant elements of my design for an automatic enrolment retirement savings system. These include key decisions in relation to the target membership, the contribution rates, the policies in relation to opting-out and reenrolment,
the administrative arrangements and organisational approach and the investment options.


As stated in the 'The Roadmap for Pensions Reform', the Government proposes to begin implementation of a supplementary retirement savings system, known as Automatic Enrolment (AE), by 2022. AE will see a transition from the current and purely voluntary system to one which will, subject to certain parameters, automatically enrol employees into a quality assured retirement savings system. The saver will maintain the freedom of choice to opt-out.

In relation to an early drawdown option for a mortgage deposit, while such an approach may appear reasonable and improve the attractiveness of AE for some people, the core policy objective of AE is to ensure adequate retirement savings. Therefore, facilitating early access
to pension savings could potentially compromise overall retirement adequacy. In this regard, it is worth bearing in mind that early access to pension funds for house deposits or for other similar reasons is not currently possible for those with existing supplementary pensions in Ireland.

Given that allowing people to access their pensions early is contrary to achieving the policy goal of pension adequacy, the Government has decided that a limited number of ‘Savings Suspension periods’ will be facilitated in the AE system for members who wish to temporarily cease making contributions. These savings suspension periods could be used when a person wishes to save for a house deposit, for instance. In such cases, employer and State contributions will also cease.

I hope this clarifies the matter for the Deputy.
 
Brendan Burgess said:
These savings suspension periods could be used when a person wishes to save for a house deposit, for instance. In such cases, employer and State contributions will also cease.
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In other words, if you save up for the deposit on a house, we will penalise you by not matching your contributions.
 
This is the biggest reform to Irish pensions basically ever.

And this is all that the second-largest party in Ireland has to say on it?
 
Hi Coyote

I presume that FF made a submission at the time. They said in their press release that they generally support the principles.

But this press release is on a very specific aspect given the Minister's nonsense reply to a PQ.

Brendan
 
All public servants join the pension scheme on day 1. I have never heard Willie O'Dea go to bat for the first time buyer public servants and ask for them to be allowed draw down their pension...

... oh, that's right, their pension contributions are spent as soon as they are deducted!!!!


You could also argue that by not including first time buyers in the auto enrolment scheme, they will be at a serious disadvantage when they read retirement age and don't have any money to enjoy themselves in retirement.

There are plenty of problems with the auto enrolment scheme but they can be fixed. FF, who are usually the party in power, have chosen to ignore the issue of saving for retirement for all of that time. They spent millions on reports that did nothing but gather dust on shelves somewhere, with absolutely zero chance of being implemented.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
llgon said:
But why should the employer and State contribute towards the deposit?
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HI ligon

In my proposal, I suggested that the person should be allowed to withdraw their own contributions to their pension fund.

The employers contribution and the state contribution would remain in the fund.

Brendan
 
SBarrett said:
You could also argue that by not including first time buyers in the auto enrolment scheme, they will be at a serious disadvantage when they read retirement age and don't have any money to enjoy themselves in retirement.
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I am not sure I understand your point.

The pensions industry don't care if we are all homeless in our retirement as long as they have been scalping up with huge charges on our pension contributions for years.

It makes no sense to borrow to invest.

Having a mortgage paying 4.5% mortgage interest while having a pension fund earning almost nothing makes no sense at all.

It is only sustainable because of the tax treatment of pensions.

It's a huge drag on the economy and the taxpayers. Using tax relief to fund the mortgage industry and the pensions industry.

Brendan
 
Brendan Burgess said:
HI ligon

In my proposal, I suggested that the person should be allowed to withdraw their own contributions to their pension fund.

The employers contribution and the state contribution would remain in the fund.

Brendan
Click to expand...

So effectively the employer and State will have contributed to the pension in the absence of employee contributions?
 
Brendan Burgess said:
HI ligon

In my proposal, I suggested that the person should be allowed to withdraw their own contributions to their pension fund.

The employers contribution and the state contribution would remain in the fund.

Brendan
Click to expand...

Brendan Burgess said:
These savings suspension periods could be used when a person wishes to save for a house deposit, for instance. In such cases, employer and State contributions will also *cease*.
Click to expand...

I think the key word is *cease* as I think there may be some language confusion. My reading of the minister's reply is that if you withdraw your own contributions to buy a house the *existing* employer contributions remain invested, they just don't contribute more while the worker is not contributing. When worker restarts, the employer restarts. That's my reading anyway, which seems to be same as what Brendan is saying.
 
Brendan Burgess said:
But this press release is on a very specific aspect given the Minister's nonsense reply to a PQ.

Brendan
Click to expand...

It's not a nonsense answer. It gets there in a roundabout way but basically says that early drawdown is against the core principles of the scheme.

If you google "Willie O'Dea pension" you will find just one other quote making the same point!


PS: there is no CGT on appreciation and no tax on imputed rent for living in your own home. So owner occupancy already gets very favourable tax treatment.
 
Brendan Burgess said:
In my proposal, I suggested that the person should be allowed to withdraw their own contributions to their pension fund.
Click to expand...

Sarenco said:
Tax free?
Click to expand...

Hi Sarenco

The Government's proposal at present is
Employee contributes 6% of gross income but paid out of net income.
The state tops this up with 2%
The Employer tops up 2%

My proposal is that the Employee can withdraw their 6%, but not the other 8%.

More specifically, I think that the person should be able to borrow the money from their pension fund so that they would repay it if they sell the house.

Brendan
 
llgon said:
So effectively the employer and State will have contributed to the pension in the absence of employee contributions?
Click to expand...

There really is no logical basis for making the employer's contribution dependent on the employee's contribution.

So I have separately suggested that the employer should have to contribute 6% of salaries for everyone - irrespective of age and salary level.

So yes, the employer will have contributed to the pension in the absence of the employee contribution.

I think it's a good idea for the state to give tax relief on long-term saving. It doesn't matter to me if those long-term savings help the person to buy a house and not rely on state housing.

Brendan
 
NoRegretsCoyote said:
It's not a nonsense answer. It gets there in a roundabout way but basically says that early drawdown is against the core principles of the scheme.
Click to expand...

Hi Coyote

The government and most people are guilty of mental accounting. The pension is here. The house and the mortgage are over there.

The policy should be to encourage people to buy their own home and to build up a pension. It should be one coherent policy.

We should not be giving tax relief on pensions while penalising people for buying their own homes.

Brendan
 
NoRegretsCoyote said:
PS: there is no CGT on appreciation and no tax on imputed rent for living in your own home. So owner occupancy already gets very favourable tax treatment.
Click to expand...

I agree. I would advocate a reduction in the CGT exemption on the family home.

But don't forget the state actual provides virtually free housing to thousands of people and contributes to the rent of thousands of others.

The whole picture must be looked at coherently and not just "Let's get people to contribute more to their pensions".

Brendan
 
SBarrett said:
... oh, that's right, their pension contributions are spent as soon as they are deducted!!!!
Click to expand...

You are hardly suggesting that the government is spending the money it deducts from public servants wages to fund their pensions. .

I mean there is scepticism and downright unjustified cynicism. Surely the government are investing it wisely so that it will be available to provide for them in their retirement.
 
cremeegg said:
You are hardly suggesting that the government is spending the money it deducts from public servants wages to fund their pensions. .
Click to expand...

Government spends about 10% of its revenue on capital investment.

This maintains and enhances the productive capacity of the economy. It supports higher tax revenues in future which will pay PS pensions.

It's a bit roundabout, but it's not true to say that there is no preparation made for these costs.
 
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