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The design of the new Automatic Enrolment Retirement Savings Scheme is inadequate and fails to address existing inequalities in the State pension system

Published 28/11/2019

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Equality for older people requires the re-distribution of resources; power and influence; status and standing; and respect.  Many older people live in the most vulnerable situations in our society with no capacity to increase their income while dealing with the increasing cost of ageing. A new autoenrolment scheme that further drives existing inequalities is simply unacceptable

A Strawman proposal for the new autoenrolment scheme was published in August 2018. A number of substantial concerns were raised at this time regarding the lack of information and clarity around the new scheme. Publication of the revised scheme – with little change from the initial 2018 proposal – in October 2019 saw little additional information made available on a range of crucial areas.

Paddy Connolly, Age Action CEO notes: “Efforts to increase pension coverage, while ensuring greater numbers of people are kept above the poverty line and in income adequacy in retirement are welcome. However, details of the new auto-enrolment scheme offer little information on how the new scheme will be implemented across relevant sectors and outside of paid work, and how it will help prevent further inequalities between those in higher and lower earning jobs, according to gender, and for those who are long-term unemployed.”

 

The New Scheme

Details on the new scheme remain unclear, in particular how it will affect the 585,000 employees central to its focus as well as those who remain outside its scope such as lower earners, carers and those over 60 or younger than 23.The design of the scheme in its current published form is inadequate and fails to address several key outstanding issues including:

  • How the system will work in practice, particularly for those already in schemes that do not meet prescribed criteria
  • How the Scheme will be reviewed, by whom and at what intervals? There is no clarity regarding the proposed indexing of the earnings trigger nor protections in the case of negative economic prevailing conditions
  • The available options for those outside of the paid workforce to opt in-to the scheme. This will be a crucial support for those in unpaid roles such as carers.
  • What supports will be available for those outside the 23-60 years age and earning below €20,000. For example, what employer and State contributions will be available? How will auto-enrolment work for those already in receipt of a State pension? What facilities and cost will there be for a delayed drawdown?
  • Overall administration of how auto-enrolment will actually work in practice remains unclear. For example, how will employees will be provided with sufficient information to make an informed choice as to funds? What will be the cap on fund fees in the case of suspension or early draw down? What role the Pensions Regulator will play in any dispute resolution.

Grave concerns remain regarding the amount of information still absent for a Scheme due to enrol its first employee in 2022. An information campaign is planned for 2021, leaving an unacceptably short time for employees to learn about the how the Scheme will work and how it will impact their take home salary and pension planning.

Clear consultation is needed to build people’s capacity to engage and make decisions around pensions.

Across future retirement planning, targeted communication is needed to help people make informed choices about their retirement options and to understand the interplay between the state pension and supplementary supports. This is especially relevant for those under pension age who may have broken service records or who will fall outside of the state pension safety net.

As with measures under the State pension system, the principles of adequacy, equity and sustainability should underpin the new system with any policy changes gender and poverty proofed.

There have been consequences – unintended or not – to Schemes introduced without proper consultation, information provision and time to introduce. The changes to the State pension bands in September 2012 saw an approximate 90,000 people in receipt of the State pension effected, with a disproportionate impact on those who had taken time out of the labour market, for example due to the Marriage Bar or to care for their families. While the TCA2012 Scheme was a welcome Government response to seek to address this, the 2012 changes left tens of thousands of older people suddenly operating under a changed policy that they had been unaware of.

Commenting on the cost of the auto-enrolment scheme, which has been estimated at between €700-800 million, Orla O’Connor says: “We are concerned about the focus on supplementary pensions when attention needs to be paid to the State pension as the best guarantee for dignity and independence into older age for women. NWCI has consistently argued against an employment based second tier as such a system will compound inequalities between men and women. We believe that the investment required to roll out this retirement savings scheme would yield better outcomes for women, if invested into our state pension system through the phased introduction of a universal pension.”

Current State Pension and Poverty

The current State pension system is not fit for purpose, with many older people surviving on incomes only just above the poverty line with the full contributory State Pension standing at €12,911 or €248.28 per week (€13,431.60 for those over 80). The latest EU SILC figures show just under one in ten older people were living on less than 60% of the national median income of €20,869 (€12,521 or €240.78per week.)

Many of those in retirement are without adequate coverage for their cost of living and rely solely or mainly on State pension supports. For those over 65 more than three-quarters of their income is made up of public transfers. To this end, the State Pension has provided a critical, and often sole, source of income for many older people. The aspiration should be for a State Pension that is above the poverty line, that lifts them away from social exclusion and that enables older people to grow old with dignity.

To provide certainty around an adequate State pension, Age Action has consistently urged the Government to meet its commitment to benchmark the State pension at 35% of average weekly earnings as outlined in the National Pensions Framework. That increase was eminently achievable – at no extra cost to the State - by reducing the tax relief on private pensions to 33%, as proposed by the National Pensions Framework. Reducing these tax breaks would not only provide the funds for significant increases for all pensioners, it would also help to reduce the massive income inequality that exists amongst older people. In particular, the depoliticising of the setting of the State Pension –to meet commitments in the ‘Roadmap for Pension Reform 2018-2013’ - by introducing a triple lock which guarantees that the basic State Pension rises each year by a minimum of 2.5%, the rate of inflation or average earnings growth – whichever is the largest will afford on-going certainty to this vulnerable group.

New Auto-enrolment Scheme

From 2022, the requirement to pay into a supplementary pension scheme will see a disproportionate impact on the take home pay of those on lower earnings. All those earning over €20,000 per annum and aged between 23-60 (and not already in schemes that meet prescribed minimum standards and contributions) will be automatically enrolled. Those aged under 23 and over 60 years, and earning below €20,000 may also choose to opt in to the scheme.

While the new auto-enrolment scheme will be phased in over a period of 10 years, it is clear that the increasing contributions demanded from employees will see a hit to pay packets, particularly for those on lower wages. Orla O’Connor, Director of the National Women’s Council of Ireland says, “A supplementary employment based pension will disproportionately hit women who remain overrepresented in lower paid, part time work and precarious work and who already suffer a pay gap during their earning years and a pensions gap in retirement. Women will only be able to afford supplementary savings if their earnings during their working lives allow it. We urgently need a comprehensive gendered approach across all social protection policies, incorporating child care supports, better maternity and paternity benefits, closing the gender pay gap as well as the introduction of family friendly employment policies to address the factors that limit women’s access to pensions due to underlying inequalities in labour market. This is critical as inequalities that older women face are built up over a lifetime.”

 

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The design of the new Automatic Enrolment Retirement Savings Scheme is inadequate and fails to address existing inequalities in the State pension system

 

 

Equality for older people requires the re-distribution of resources; power and influence; status and standing; and respect.  Many older people live in the most vulnerable situations in our society with no capacity to increase their income while dealing with the increasing cost of ageing. A new autoenrolment scheme that further drives existing inequalities is simply unacceptable

A Strawman proposal for the new autoenrolment scheme was published in August 2018. A number of substantial concerns were raised at this time regarding the lack of information and clarity around the new scheme. Publication of the revised scheme – with little change from the initial 2018 proposal – in October 2019 saw little additional information made available on a range of crucial areas.

Paddy Connolly, Age Action CEO notes: “Efforts to increase pension coverage, while ensuring greater numbers of people are kept above the poverty line and in income adequacy in retirement are welcome. However, details of the new auto-enrolment scheme offer little information on how the new scheme will be implemented across relevant sectors and outside of paid work, and how it will help prevent further inequalities between those in higher and lower earning jobs, according to gender, and for those who are long-term unemployed.”