Minister Leo Varadkar, T.D.

Department of Enterprise, Trade and Employment 23 Kildare Street

Dublin 2 D02 TD30

22 July 2021

By Email: leo.varadkar@oireachtas.ie

Re: Automatic Enrolment

Dear Tánaiste,

I hope this letter finds you well.

I am writing to you on behalf of Chartered Accountants Ireland regarding the proposed introduction of an Automatic Enrolment (“auto-enrolment”) pension scheme in Ireland. We had a very worthwhile meeting with colleagues in your Department recently and we would like to expand on two of the points made by us in the context of the discussions: the proposed State incentive model for the auto-enrolment as well as the expected timeline for its introduction.

Tax relief model

The existing and well-established model for tax relief at both standard and marginal rates for pension contributions should apply to auto-enrolment and the proposal to introduce a second model, whereby the State, for example, contributes €1 for every €3 paid in by an employee, should be withdrawn.

The operation of two tax systems between auto-enrolment and private pension schemes will cause needless tax arbitrage and confusion within the market.

According to Revenue’s 2019 Statistics and Insights from the First Year of Real-Time Payroll Reporting (PAYE Modernisation), 30% of all employees are making regular contributions to their pensions, and the gross income point at which most employees make a pension contribution is between €40,000 and €45,000, i.e., middle- income earners and marginal taxpayers.

These individuals cannot be considered ‘high earners’ and are not going to be wealthy in retirement. The same statistics show that 65% of those in retirement have estimated annual incomes of €20,000 or less (excluding the State Pension).

Pensions draw-downs are taxed at marginal rates meaning that the tax is effectively deferred rather than avoided. If tax relief is reduced for middle- income workers from 40% to 25%, this will greatly reduce the incentive for them to continue to save for their pensions. This reduced level of saving would mean that these individuals would have lower pensions in retirement, which could lead to greater demands on the State Pension.

Auto-enrolment should also be used to address the pension vulnerability that exist within the pensions system. Many lower- income earners, zero-contract workers, carers, and women who have taken time out of the workforce, will rely on the State Pension in old age to fund their retirement. This cohort of people should be encouraged, by way of a credit or tax relief, to provide for some level of private pension and auto- enrolment can help with this.

For example, in the UK, the auto- enrolment system allows non-earners to contribute up to £2,880 each tax year and receive an automatic tax relief or top up of 20% even though they are not paying income tax. Effectively this means that £3,600 is paid into a pension scheme after tax relief is claimed by the provider. A similar targeted approach should be adopted in Ireland to protect the most vulnerable in our society.

Timeline for implementing auto-enrolment

In February 2021, the Government announced that the introduction of the auto-enrolment system would be delayed until at least 2023. While this is not surprising, given the impact the COVID-19 pandemic has had on businesses in Ireland, sufficient time is needed to develop, test, and deploy a fully operational system of auto-enrolment. Therefore, we are asking that a clear timeline is published for the introduction of the system and that the logistics of the system are fully tested before it becomes mandatory.

Businesses need time to plan for its introduction and to adjust their systems. Payroll services providers tell us that a lead- in time of at least 18 months would be required to properly adapt to this significant change. For the PAYE modernisation project, the engagement model between Revenue, payroll providers, advisors, employers, and representative bodies worked effectively and could be followed for auto-enrolment. Regular meetings to discuss technical details are vital, as is detailed guidance to help employers and employees understand the system.

We would be grateful for your attention to both matters raised and look forward to your response.

Yours sincerely,

Cróna Clohisey

Public Policy Lead

Chartered Accountants Ireland