Irish unions have called on the government to introduce a mandatory second-pillar defined pension system, suggesting it should forego a planned tax cut and use the income as the initial contribution.
Fergus Whelan, head of pension policy at the Irish Congress of Trade Unions (ICTU), told IPE the country was facing a “huge crisis” due to low pension coverage for private sector workers and declining pension adequacy for those in Irish public sector schemes.
He said the union umbrella group was supporting the introduction of a mandatory, universal retirement system for those not currently saving into a pension fund, although he noted its proposal had not been put to the Universal Retirement Savings Group (URSG) convened by the government last year.
Conceding that the ICTU had “probably missed the boat”, Whelan nevertheless suggested eligible workers’ initial contributions for the proposed universal system be diverted from the Universal Social Charge (USC), a progressive tax on income which the new Fine Gael-led minority government has pledged to phase out.
Introduced in 2011, the USC is levied at a rate of 1% on income up to €12,012, increasing gradually to 8% on income above €100,000.
“So, what we are saying is that, for any worker who is not in a scheme, instead of giving them back their Universal Social Charge, the Universal Social Charge should be their initial contribution to the scheme,” Whelan said.
“That should be matched by a contribution from the employers.”
|USC rates in 2016|
|Up to €12,012||1%|
|From €12,012.01 to €18,668.00||3%|
|From €18,668.01 to €70,044.00||5.5%|
|From €70,044.01 to €100,000.00||8%|
|Any PAYE income over €100,000||8%|
He stressed that the proposed system would only be for those not currently in a second-pillar scheme, as the ICTU does not want to see the approach “replace the few good pension arrangements around”.
National Superannuation Fund
Whelan said the ICTU would like Ireland’s revenue office to be in charge of collecting contributions, which would be paid into a single, central, defined contribution (DC) pension fund – the National Superannuation Fund – administered by a trustee board.
The pension pot would be transferable, in that it would follow employees if and when they joined a new employer.
Whelan warned against the involvement of a private company pursuing a profit motive for such a scheme.
“The danger of people just milking this system would be ever-present, so we are fairly determined to avoid that if we can,” he said.
However, he accepted private sector asset managers would have a role in investing any contributions.
The emphasis on a potentially government-backed not-for-profit provider echoes the statutory nature of a number of large pension funds, such as Sweden’s AP7, the UK’s National Employment Savings Trust and the Cook Islands’ National Superannuation Fund.
Similarly, the Canadian provincial government of Ontario is to launch the Ontario Retirement Pension Plan in 2018 – with a compulsory, employer-matched contribution of 1.9% for workers not currently saving into a private-sector plan.
Whelan said initial discussions with Ireland’s employer association, IBEC, had already taken place, and that he was “very pleasantly surprised” to see it broadly support ICTU’s proposal.
He added: “They’ve no objection to paying into a scheme, so long as they have certainty about their level of contribution.”
IBEC’s head of education and social policy Tony Donohoe agreed there was little point in phasing out the USC, only to introduce “a similar tax in the form of a universal pension scheme in the future”.
He also said New Zealand’s approach of having a regularly tendered list of default Superannuation providers – then assigned by the New Zealand revenue office if beneficiaries made no active provider choice – was worth considering.
IBEC has previously offered qualified support to the Universal Retirement Savings Group (URSG), convened by the government in early 2015 to consider the introduction of either an auto-enrolment-based or mandatory second-pillar system.
Whelan explained that the ICTU’s proposal had not been submitted to the URSG, as the initial consultation period in early 2015 had not allowed it sufficient time to consult its union member base.
Successive Irish governments have weighed up, or pledged, the introduction of an auto-enrolment system, to no avail.
However, the two largest parties in the current parliament both pledged before February’s election their support for such a model.