Speech by Minister Heather Humphreys at the National Pensions Summit 2024

Keynote Speech by Heather Humphreys, Minister for Social Protection at the National Pensions Summit 2024 - Croke Park, 1 February 2024.

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Thank you Claire and good morning everyone.

I’m delighted to join you all here in Croke Park this morning for the National Pensions Summit 2024.

I just want to begin by thanking the sponsors, Irish Life, as well as our hosts, the Business Post and iQuest, for organising today’s event.

We meet here today on the cusp of what are the most fundamental reforms in the history of the Irish Pension landscape.

Major reforms to our State Pension system have already taken effect in January with the introduction of the new pension deferral system which will provide workers with more flexibility and choice in their retirement.

I’ll speak further about that a little later on but I think it’s safe to say the topic on everybody’s mind here this morning is Auto – Enrolment.

Well I’m here today to tell you all, loud and clear - 2024 is going to be the year Auto Enrolment is delivered.

In order to make that happen, there are multiple pieces of work now happening in parallel.

The tender process for the pensions administrative service to run the AE system is well advanced.

The ‘pre-qualification process’ is already complete, resulting in a shortlist of candidates.

I’m pleased to announce this morning that The ‘Request for Tender’ will be provided to this shortlist tomorrow.

That means we will have a provider in place in the coming months as we work towards the launch of the scheme itself later this year.

In addition, A procurement exercise for investment management services is at an advanced stage of development, with extensive market research being undertaken to inform the development of the ‘Request for Tender’ that will issue in the very near future.

In terms of the legislation itself, the Auto Enrolment Bill will be published in March and begin it’s passage through the Oireachtas immediately thereafter.

And as I have told my officials, I will sit in the Dail and Seanad day and night to get that Bill enacted as quickly as humanly possible.

Too much work has been invested to get to this point.

We have the stone pushed to the top of the mountain and I am absolutely determined now to get it over the top.

And that’s because Auto Enrolment is going to be a transformative scheme for our people.

It will, without doubt, represent the biggest reform of our pension system in the history of the State.

Auto-Enrolment has been talked about in this country for decades.

Now, in 2024, the time for talk is over - it’s time for delivery and I fully expect that the first enrolments will take place later this year.

When implemented, Auto Enrolment will ensure that every employee in the State is supported in building up savings for their retirement.

This is about sending a clear message to our workers – and in particular to the young workers of today – that we want you to be able to look forward to a secure financial future.

As we all know, for many people, retirement can often seem a long way off.

People can understandably put the issue of saving for a pension on the long-finger.

‘It’s something I’ll get round to next year or the year after,’

But as you all know, that process of putting aside a little each week to provide for retirement years is something that should happen early on in a person’s career.

The picture painted by the CSO is stark to say the least - The rate of supplementary pension coverage today represents just 56 per cent of the working population.

And it is estimated that this figure may be as low as 35 per cent when the private sector is considered in isolation.

Auto Enrolment is crucial to reversing that long-standing and worrying trend of low pension coverage in Ireland.

It will do so by turning the system on its head to one where people will have to consciously “opt-out” of supplementary pension coverage rather than “opt in”.

The experience from other countries clearly shows that the numbers who opt out are very low.

As Minister, I believe passionately in the introduction of Auto-Enrolment.

I’m conscious too that Government’s plans for the introduction of an AE system have been the subject of much commentary and debate in recent months.

I want to be very clear that I understand some employers have concerns about the introduction of AE.

As a former Minister for Business, who talks to employers every week, I know that it is a challenging time for many small businesses right now.

Employers are facing pressures on a number of fronts – be it high inflation, a significant increase in the minimum wage, the introduction of Statutory Sick Pay and now the roll-out of Auto-Enrolment.

But in truth, we have to weigh all this up against the fact that putting off the introduction of Auto-Enrolment for another few years just simply is not an option.

Irrespective of the prevailing economics, there is a pressing need to increase pension coverage and pension adequacy for workers because, as you are all aware, most private sector employees are not saving for their retirement.

This means that they will be relying solely on the State Pension when they retire.

While the State Pension provides a basic level of income and acts as an effective protection against poverty, it is not designed or intended to secure full pension adequacy for all people when they retire.

Therefore, people without supplementary retirement savings may face significant and unwanted reductions in their living standards in their retirement years.

We have to ask ourselves today, is that something that we as a Society and as a State are prepared to just sit back and allow to happen?

As I mentioned earlier, Ireland’s supplementary pension’s coverage rate has remained stubbornly low over the last 20-30 years.

Over the same period, there have been multiple occasions where implementation of an AE system has been examined and considered, including in the National Pensions Framework of 2010 and the OECD’s review of the Irish Pensions System of 2014.

In 2018, the ‘strawman’ proposal was published, which formed the basis of an extensive public consultation.

Then followed a series of government decisions on the design throughout 2019 to 2022, which provided the mandate for implementation.

I recognise that employers should be able to plan ahead and budget for the introduction of AE.

We have listened to those concerns and the design of the AE system now provides for the phasing in of the contribution rates over a decade, starting at a very low 1.5 per cent of gross pay for the first three years.

For employers, this approach gives very clear certainty, allowing them to confidently budget and plan ahead.

Most employers will also be spared any real administrative burden because the government has decided to set up a Central Processing Authority, which will undertake most of the administration of the new system.

It is also considerably lower than the administrative burden that AE systems in other jurisdictions impose.

Therefore, the preparation required by employers is largely limited to appropriate budgeting and in this regard my advice to employers is to continue to presume AE will happen from Quarter 4 this year, and to budget accordingly.

I also acknowledge that there are some employers who offer their employees the option to join their existing pension scheme after waiting periods.

However, it is important to reassure employers that employees who are enrolled in AE and subsequently want to join their employer’s scheme will have the opportunity to do so.

AE will not prevent employers from offering their scheme to employees, especially in the case where that scheme may be more suitable for the employee’s circumstances.

I would therefore encourage employers to discuss retirement provision with their employees to ensure that the coverage provided through their employment, either through AE or an employer scheme, is suitable for their needs and circumstances.

Auto Enrolment will be a new and unique scheme established by law for and on behalf of workers in the private sector.

It is about getting people to save for their retirement earlier and to support them in doing that.

We will achieve this by taking away complexity, by simplifying people’s choices and by providing for significant employer and State contributions.

The design of the system will encourage more workers to save for retirement, helping them to sustain a reasonable standard of living into that phase of their lives.

There’s never a wrong time to do the right thing.

As Minister, I am not prepared to take the risk of delaying the introduction of Auto Enrolment beyond the lifetime of this government.

I will now turn to the continued reforms in Occupational Pensions.

As you know, the improved governance, regulation and simplification of occupational pensions was another major strand of the government’s Roadmap for Pensions Reform.

Firstly, and following on from that, the Interdepartmental Pension Reform and Taxation Group published its Report on Supplementary Pensions in November 2020.

A number of the recommendations made by the Group in relation to PRSAs and ARFs were enacted in the Finance Acts of 2021, 2022 and 2023.

The implementation group continues its work considering the various recommendations with a view to introducing further reform measures as soon as possible.

Secondly, and key to the reforms are the Regulations which I introduced in 2021 to transpose requirements of the IORP II Directive into Irish law.

These are already contributing to significant improvements in the regulation, governance and communication standards of funded occupational pension schemes in Ireland, and this will continue.

I appreciate that ensuring compliance with the requirements of IORP II has meant that it has been a busy and challenging period recently for trustees, pension managers and others within the industry.

However, it is important to remember that a key goal of reform is to develop a pension system that is trustworthy, transparent, and well managed.

Post IORP II, the pensions market is undergoing consolidation, with a move towards master trusts as smaller schemes consider their ability to meet higher governance requirements.

The consolidation of pension schemes into Master Trusts will facilitate enhanced supervision by the Pensions Authority; help to improve the overall standards of scheme governance and security as well as increasing economies of scale which should facilitate lower costs to members.

And so, in that vein, officials in my department are working, in conjunction with the Pensions Authority, to identify requirements and to develop proposals to provide a legal underpinning for a master trust regime in Ireland.

This is about providing for a system of scheme authorisation in Ireland to ensure that all schemes meet the standards expected of them. We hope to progress those through this year.

And finally, I might just give a quick overview of our new and improved flexible State Pension system.

As the bedrock of our system, the State Pension provides a basic and effective protection against pensioner poverty.

The State Pension should, in most cases, be combined with individual retirement savings in the form of occupational pensions or personal pensions.

In combination, this allows employees, employers and the State to each play their part in addressing the provision of retirement incomes.

As you are all aware, there are many challenges facing the State Pension system in Ireland including:

• the sustainability of the system over the longer term,
• rising life expectancy, and
• the adequacy of contribution levels and benefits.

In September 2022, following detailed examination and consideration of the Report from the Commission on Pensions, I announced a series of landmark reforms to the State pension system.

The introduction of a Deferred Pension Age is a key part of these reforms.

While Government decided to keep the State pension age at 66, from the beginning of this year, people now have the option of continuing to work up until the age of 70 in return for an actuarially adjusted higher rate of payment.

What this is about is giving people greater choice.

If you want to draw your pension at age 66, you can still do so.

But if you want to continue to work on longer, for a year, or two or even more, that is now an equally viable option.

It’s something which is particularly attractive to those people who might not otherwise have sufficient contributions to qualify for a Contributory Pension or those who may qualify for a reduced payment rate.

People in that situation can now decide to work a little longer and get a higher payment – a choice that was not available to them before now.

It’s important to point out that those who defer claiming their State Pension and continue to work will also have access to short-term benefits during the period of deferral.

This is an important structural change that recognises that a one-size-fits all approach is no longer relevant to retirement and as we are all living longer and healthier lives, it is right to provide people with greater choice.

One small but important change we have also made is that Long term carers can now qualify for a State Pension based on the time they have spent caring for a loved one.

This reform will mean that thousands of people, mainly women, who have spent time caring for their loved ones, will finally be rewarded for the work that they have done and continue to do.

Having met with so many family carers in recent months, I can’t tell you just how much these changes mean to them.

Today, they feel that their tireless work is finally being given the recognition it deserves and I want to take this opportunity to thank all our carers for the contribution they have made and continue to make in the home and in the community.

Over the next ten years, the yearly averaging method of calculating State Pension will be phased out and replaced by the Total Contributions Approach.

The Total Cons approach is a fairer and more transparent method for calculating a persons State Pension entitlement, it removes current anomalies and ensures that a person’s pension is based on their contributions over their entire working life.

We do need to address the projected shortfalls in social insurance income to ensure our State pension system is sustainable into the future.

That is why Government has for the first time agreed a roadmap for PRSI increases over the next five years.

By starting this process now, when the Social Insurance Fund is in good shape with a healthy surplus, it means these increases can be small and incremental.

The first increase of 0.1% will take effect in October and will mean the average worker will pay about 90cent extra a week.

Separately to all of that, you are probably aware that, in recent weeks, the Supreme Court delivered a landmark judgment in relation to the Widow’s Pension.

This demonstrates that sometimes concepts that seem well established in pensions and law are open to challenge and may require change.

The Supreme Court judgment recognises that resolving this issue requires a legislative amendment.

The full judgment is currently being considered by my department and the Office of the Attorney General.

It’s important we get this right and I intend to bring forward the necessary legislative amendment as quickly as possible.

There was an Oscar winning film a couple of years ago called: Everything, Everywhere; All at Once.

The same title could be applied to the Irish Pension Landscape at the moment.

Auto Enrolment, IORPS and a new flexible State Pension.

After decades of delay and inertia, it now seems everything is happening in tandem.

Of course the scale of these reforms presents its own challenges and I want to thank everybody here from industry for the work you are doing to ensure the best outcomes for Irish pension scheme members.

I am extremely proud as Minister to lead on these transformational reforms which will have a positive and lasting impact on people lives in Ireland for generations to come.

As some of you will know, I’m a proud Monaghan woman, and like all Monaghan people – when we get to Croke Park we like to stay here as long as possible so you’ll forgive the long speech today!

When Monaghan come to Croke Park we like to finish the job and anybody who saw the match against the Dubs last Saturday night will know that!

I can assure you all today it is my full intention to finish the job and get Auto Enrolment delivered this year

Go raibh maith agat.