The Department of Finance has raised concerns about light-tough supervision being planned for the incoming multibillion euro auto-enrolment (AE) pension system by colleagues in the Department of Social Protection, according to new documents.
While the AE system is being set up technically to come under the oversight of the Pensions Authority, the legislation has been framed in a way that will force the regulator to apply a lower standard of oversight to the new AE agency than it imposes on firms in the private pensions market.
AE, which the Government plans to launch early next year, is expected to capture 750,000 workers between the ages of 23 and 60 who are earning at least €20,000 a year but are not currently signed up to a workplace pension scheme.
“The Department of Finance has reservations in relation to the supervision proposed in the [Automatic Enrolment Retirement Savings Act 2024] and is of a view that the supervision should include forward-looking risk-based supervision in line with every other pension scheme that the Pensions Authority oversees,” finance officials said in briefing material prepared for Minister for Finance Jack Chambers on his appointment last month.
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The recently-enacted Act, the sole piece of legislation driving oversight of the mandatory workplace pension scheme, stipulates the watchdog must prepare an annual supervisory report for the Minister of Social Protection on the agency – the yet-to-be-established National Automatic Enrolment Retirement Savings Authority (Nearsa).
The private pensions sector is subject to a wider range of legislation.
Insurance Ireland, the industry representative body, is among parties that have taken aim at the inconsistency of the regulation of the new AE regime with private pension schemes in the State.
“It appears AE will be held to lower standards than the existing private system,” Insurance Ireland said last month. “The proposed AE system will not be an institution of occupational retirement provision (IORP) or a Master Trust or indeed, a pension, and therefore it is not subject to any existing pension scheme legislation.”
The new defined contribution system, where retirement benefits will be linked to the performance of assets, should have about €21 billion of assets in funds after 10 years, excluding investment returns, according to the Department of Social Protection.
It is expected that the set-up costs of Nearsa will be covered by a government, or by a government-guaranteed loan.
“While DSP has produced its own report designating auto-enrolment as off-balance sheet, the [Central Statistics Office] and Eurostat are the ultimate arbiters of statistical classification matters. Their early analysis indicates [Nearsa] as an entity will be classified on the general government balance sheet,” the Department of Finance briefing document said.
“It is likely, according to [the department’s] budget and economic division, AE will be classified as a ‘contingent liability’ and therefore the pricing of Irish sovereign debt instruments would likely be adjusted accordingly.”
Representatives for the Department of Social Protection did not respond to a request for comment.
Indian information technology company Tata Consultancy Services was selected last month as the Government’s preferred partner to build and run the AE system. However, there is a widespread view that AE – which was first proposed in 2006 by then Fianna Fáil minister for social and family affairs Séamus Brennan – will not be up and running in early 2025. Nearsa has yet to be set up, and the department still has not begun the formal search for asset management firms to manage the underlying investments.
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