Oireachtas Committee publishes report on Auto Enrolment

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TheJackal

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Pensions Reform

Pensions Reform Dáil Éireann Debate, Tuesday - 25 July 2023
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Tuesday, 25 July 2023
The Joint Oireachtas Committee on Social Protection has now published its report on the pre-legislative scrutiny of the Heads of Bill to establish the AE system, setting out 21 observations and recommendations. I am considering these recommendations in the drafting of the Bill, but would note that several of them are already incorporated in the design agreed by Government for implementation in a later phase once the system is bedded in. Other recommendations cannot be accommodated as they would require considerable change to the design already agreed by Government. The completion of the Committee’s scrutiny of the AE Heads of Bill nevertheless represents an important step in the legislative process.

Among the recommendations of the JOC are some relating to environmental concerns and the arms industry. In that context, it is important to state that the primary aim of investing AE participants’ funds is to provide a good financial return for them, so that they may have an adequate supplementary income that is over and above the level of the State Pension when they retire.

To manage and administer the AE system, a Central Processing Authority (CPA) will be established. It will procure, through the open financial services market, investment management services on behalf of AE participants. I want to make it clear to the Deputy that the CPA will not be administering a new State fund, but rather will be administering hundreds of thousands of individual savings accounts that are, and will remain, the personal property of the AE participants. The AE project is, in that sense, a State-incentivised personal savings scheme for individuals rather than a new national fund. In that context, the CPA and investment managers will have a duty to, first and foremost, get a good financial return for participants.

In designing high level investment strategies and in contracting for investment services, the Board of the CPA will be guided by both the prudent person principle as well as the need to ensure investments take account of environmental, social and governance (ESG) principles. Such principles would include taking pollution caused by fossil fuels and concerns relating to the arms industry into consideration as part of the overarching, long-term strategy.
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It reads to me that most of the JOC recommendatons will be ignored
 
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Pension Provisions

Pension Provisions Dáil Éireann Debate, Thursday - 13 July 2023
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I expect to be in a position to publish the AE Bill in the Autumn and to commence its passage through the Oireachtas immediately thereafter. Enactment of the AE Bill will then facilitate the AE system to start in the second half of 2024.
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Am I reading into this too much or did the Irish Times read my links in the posts above. Article below is on front page on today's paper, based off the PQ reply issued July 25th which I referenced last week.

www.irishtimes.com

Start date for landmark pensions auto-enrolment scheme slips to late 2024

Initiative will see most workers being signed up to a pension scheme by default with option to opt out
www.irishtimes.com www.irishtimes.com

They also attributed the quotes to her reply to Patrick Costello but it the quotes were from my other link, to Richard Bruton on July 13th.

Sloppy misquotes. Article does not mention when the PQs issued (or Richad Bruton at all) so as to not let the reader know the news is from mid to late July...
In a written response to a question from Green Party TD Patrick Costello, she said the legislation to underpin the establishment of the CPA is currently being drafted.

She expects to publish it in the autumn “and to commence its passage through the Oireachtas immediately thereafter”.

She said: “Enactment of the AE Bill will then facilitate the AE system to start in the second half of 2024.”
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Hi @TheJackal
There isn't a hope of AE being introduced in 2024. Even 2025 is doubtful. Far too much has yet to be decided.
Firstly, Minister Humphreys has asked the Pensions Council to commission an independent evaluation of the proposal for a smoothed equity approach to AE, which I claim will halve the cost of an "adequate" pension. The Minister is unlikely to make any major decisions before that evaluation is completed - expected sometime in September.
Other vitally important aspects of AE are still outstanding.
One of the most important is the charge on members' accounts. The Draft Heads of Bill is silent - no indication of what the charge will be in all its 113 pages. DSP Officials said in the past that the charge would be a max of 0.5% of assets under management (AUM), but they've gone quiet recently. In a reply to a PQ on 11 May last, the Minister for Public Expenditure, NDP Delivery and Reform wrote that his Department must agree whatever charge DSP proposes. We haven't heard if those discussions have taken place and if so, their outcome. My suspicion is that DSP proposed 0.5% but DPER sent them back with a flea in their ear, saying that their scheme will cost far more than 0.5% a year to administer, probably closer to 1%. You need look no further than NEST in the UK to understand why. NEST had an accumulated deficit of over £800 million in March 2022. That's after more than ten years in existence. It has more than ten times as many members as the Irish scheme can ever hope to have. It charges around 0.5% of AUM on average. It doesn't project to break even until 2038. If it has trouble living within 0.5%, what hope does the Irish scheme have?
If you're interested, I say more about this and other outstanding aspects of government's proposals on the pensions tab of my website colmfagan.ie, particularly the document titled "Thoughts on Pensions Council's RFQ"
 
This government had two big objectives on pensions: moving to TCA and autoenrollment. See the programme for government:


The Government will implement a Total Contributions approach, aiming to better match a person's contributory pension with the contributions they have made. This approach will also incorporate credited contributions, guaranteeing that individuals who take breaks from work to provide care for their loved ones are not put at a disadvantage.
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[and]
The new Government plans to introduce a pension auto-enrolment system, taking into consideration the significant pressure currently faced by both employers and employees. The aim is to gradually implement an automatic enrolment scheme based on the following principles:

  • Matching contributions will be made by both workers and employers, with additional contributions from the State.
  • The rollout of worker contributions will occur in phases over a ten-year period.
  • An opt-out provision will be available for those who choose not to participate.
  • Workers will have a selection of retirement savings options to choose from.
  • There will be a cap on charges imposed on pension providers.
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Regardless of what you think, it's hard to think of a better backdrop for implementing big reforms like this. Ireland's population is still relatively young and the economy is running red hot with unemployment at its lowest rate ever.

It looks like neither objective will be legislated for in the lifespan of the government.
 
Latest update from Oct 3rd

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Pension Provisions

Pension Provisions Dáil Éireann Debate, Tuesday - 3 October 2023
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Implementation of the AE system has been gathering pace since then, with the first enrolments expected in the latter half of 2024.
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It is my intention to publish the AE Bill during this current session of the Dáil, with initiation of its passage through the Oireachtas immediately thereafter. This will be a major milestone in progressing towards the implementation of AE.
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What's taking the government so long to do this, they have been talking about it forever. Now it's pushed back to end of 2024.
Will you still be able to have a prsa with tax relief and also an auto enrolled pension with government top ups?
 
joe sod said:
What's taking the government so long to do this, they have been talking about it forever. Now it's pushed back to end of 2024.
Will you still be able to have a prsa with tax relief and also an auto enrolled pension with government top ups?
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Not a chance of it being ready in any part of 2024, unless Revenue management the collection of the pension payments.
 
joe sod said:
What's taking the government so long to do this, they have been talking about it forever. Now it's pushed back to end of 2024.
Will you still be able to have a prsa with tax relief and also an auto enrolled pension with government top ups?
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From what I read in the auto-enrolment designs, there was no facility to contribute more than the specified AE percentages, either through the AE scheme or something else, something I thought was a huge flaw in the design.
 
More Oireachtas correspondence here from 6 Nov, uploaded 14 Dec


Seems to be 2 big issues now arising re
1)regulating the pesion scheme; and
2) potential for employers to need to have two parallel systems between the occupational schemes and the AE scheme
 
TheJackal said:
More Oireachtas correspondence here from 6 Nov, uploaded 14 Dec


Seems to be 2 big issues now arising re
1)regulating the pesion scheme; and
2) potential for employers to need to have two parallel systems between the occupational schemes and the AE scheme
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I wouldn't be overly concerned with (1) as it seems that the official line is that AE is not a pension scheme at all and is therefore not subject to the same regulations as any other pension scheme. (It's good to be the king...)

But (2) is certainly going to cause big issues. Any pension scheme I know has a waiting period of 6 months after you join an employer before you join the pension scheme, which coincides with the end of your probation period. AE proposes that you join AE straight away. So what now happens - you join AE for 6 months and then join the Occupational Pension Scheme if it's better than AE?

As far as I know, the tender request hasn't even been published for running the CPA, even though this was supposed to happen in 2023.

Not holding my breath for AE starting in 2024...
 
It seems to me that Irish Life are missing the elephant in the room. The tax subsidy for 40% taxpayers is twice as large in a traditional scheme as it will be in AE. No 40% taxpayer in their right mind would opt for AE over traditional. The ESRI estimates that this will be 25% of the target constituency. But it is worse than that. It may be 25% at a point in time but the tendency is for the 75% not there yet (early career) to migrate upwards into the 40% band. There will be huge pressure on employers to run parallel systems. This will be a bonanza for the pensions industry.
 
There are a few elephants in the room!
Firstly, The Duke mentions the problem of 40% taxpayers. That anomaly must be removed. Brian Woods, in a submission to the JOC, showed how. Brian and I also set out the solution in a joint submission to the SSISI on a paper by Shane Whelan and Maeve Halley. Our SSISI submission is attached.
But the other elephant in the room is that tax relief on AE is much better than on conventional pension plans for someone on 20% tax. Therefore, unless I'm missing something, workers on the 20% tax rate will have to be enrolled in AE, with corresponding reductions in employer and employee contributions to conventional plans. There doesn't seem to be any way round it.
My proposal for AE causes less disruption in this regard than the DSP's scheme. I'm proposing contributions of just 3% from employers and 3% from employees (in both cases on earnings up to €80k a year) instead of 6% proposed by the DSP. Therefore, there will be more scope for top-up contributions to conventional pension arrangements under my proposal than under the DSP's.
 

Attachments

  • Submission Woods and Fagan on Whelan Hally Paper.pdf
    203.2 KB · Views: 54
What a dog's dinner the 2018 Strawman is turning out to be. Here is the litany of errors.
1. Four providers would compete at the retail level. That has now been changed to the CPA being the single interface with the end user.
2. Those who did not want to choose a provider would be apportioned one on a random basis - the carousel. This nonsense was quickly dropped.
3. The proposition would follow the SSIA successful precedent, in particular benefits would not be taxed. Have they actually ditched this silliness? The fact is that we know nothing about the decumulation phase despite being promised in 2018 that this key aspect would be sorted out in time for launch. Not so.
4. The 0.5% cap on AMC is conspicuously absent from the Heads of Bill, though the DSP do still claim that this is the intention.
5. And finally the (two) elephants in the room. They have not addressed the two major distortions (in different directions) caused by introducing this 1 for 3 top up instead of the traditional tax relief. The least of the worries is that this causes is the need for parallel systems. It simply won't work.

And of course we are still waiting the Pensions Council's verdict on Colm Fagan's smoothing proposal as requested by the Minister last April and despite the external independent evaluation being available in September. Are the Pensions Council waiting for an election to get them off the hook?
 
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