Public Policy Bulletin, 20 November 2020

Nov 20, 2020

 

In this week’s Public Policy news, read about recommendations contained within a report on Ireland’s pension landscape; the European Commission’s economic forecast for Ireland and its proposal to grant Ireland €2.5 billion in financial support; a proposed expansion in Northern Ireland's aerospace sector; and the emergence of the world’s largest trading bloc in Asia.

New report recommends simplifying Ireland’s pension landscape

The Interdepartmental Pensions Reform & Taxation Group last week released a new report, running to 140 pages, which looks at ways to simplify the supplementary pension landscape, a review of the Approved Retirement Fund (ARF) as well as assessing the cost of the State providing tax relief for pension savings.  The Group which is chaired by the Department of Finance and includes members from Revenue, the Department of Social Protection, the Pensions Authority and the Department of Public Expenditure and Reform have written the report based on responses to the 2018 public consultation exercise.

The report recommended several areas of reform to consider including the following:

  • The normal retirement age should increase from70 to 75 years (i.e. the age by which pension funds have to be drawn down).
  • The age at which people can access their pension funds will be standardised at 55. The report says that this is in line with longer working as a result of increasing age.
  • Accurately calculating the total cost of tax relief on pensions is a challenge due to limited availability of data. However, tax relief on pension contributions benefits middle income levels the most with those on higher incomes also benefiting.
  • Automatic enrolment has the potential to address both the coverage and adequacy gaps in Ireland; however care needs to be taken to ensure that any State Benefit is aligned in some way with the current tax relief.
  • Buy out Bonds (BOBs) and Retirement Annuity Contracts (RACs) should cease. Existing BOBs and RACs should be allowed to run-off over time.
  • The PRSA should operate as the sole personal pension product.
  • The Approved Minimum Retirement Fund (AMRF) should be abolished given that the State Pension means the requirement to have an annual guaranteed income of €12,700 is largely redundant.
  • The differential treatment of the PRSA for funding purposes should be abolished, employer contributions to PRSAs should not be subject to BIK.

In addition to this, a new Pensions Commission has been set up to examine the possibility of increasing the State Pension Age. Auto-enrolment proposals are still under review.

We will keep readers posted of developments.

European Commission publishes Autumn Economic Forecast for Ireland 

The European Commission this week published its Autumn 2020 Economic Forecast. It projects that Ireland’s economy will contract by 2.25 percent in 2020. The 3 percent growth it anticipates in 2021 will be followed by further growth of 2.5 percent in 2022. A better reflection of the underlying domestic economy, though, is modified domestic demand. This the Commission expects to fall by 6.5 percent in 2020 and grow by 7.25 percent in 2021 and 4.5 percent in 2022.  A summary of the forecast has been reproduced below:

  2019  2020   2021 2022 
GDP growth (%, yoy)   5.6   -2.3  2.9   2.6
 

Inflation (%, yoy)                                                                              

 0.9  -0.5   0.3  1.6
Unemployment (%)  5.0   5.3   8.9   8.7
 

Public budget balance (% of GDP) 

 0.5   -6.8   -5.8   -2.5
 

Gross public debt (% of GDP) 

 57.4   63.1   66.0   66.0
 

Current account balance (% of GDP) 

 -11.3   5.7   0.2   -1.1

Source: Economic and Financial Affairs       European Commission

Despite a strong rebound in the third quarter after the severe shock in the first half of the year, the later resurgence of the pandemic means that growth projections over the forecast horizon for the euro area and the EU are subject to an extremely high degree of uncertainty and risks. Output in both is not expected to recover its pre-pandemic level in 2022,

In the case of Ireland, the Commission found that Ireland’s domestic economy was hit severely by Covid-19 control measures in the first half of the year. The fall in real GDP was cushioned by strong exports by multinationals and employment has been shielded by state income support schemes. However, the contraction in the economy, combined with the high fiscal stimulus packages are expected to significantly widen the budget deficit, so, similar to the euro area and EU, risks to Ireland’s outlook remain exceptionally high.

The full Irish forecast can be found here.

€2.5 billion proposed for Ireland under SURE

The European Commission has proposed a decision to grant €2.5 billion in financial support to Ireland under SURE. SURE is the European instrument for temporary financial support to mitigate unemployment risks in an emergency.  It is part of EU's strategy to mitigate the negative consequences of the COVID-19 pandemic by protecting jobs and workers. It covers 18 Member States, including Italy, Spain and Poland. If the proposal is approved by the European Council, Ireland will receive loans on favourable terms to help cover the costs associated with the Temporary Wage Subsidy Scheme.

Northern Ireland’s aerospace sector set for expansion  

Invest NI has announced it is seeking a contractor to deliver a new ‘Northern Ireland Aerospace Customer Diversification Programme’. Anticipating an ‘inevitable upturn and new world of aerospace’, the scheme reportedly plans to diversify Northern Ireland’s aerospace sector and help it expand to reach new and emerging markets.

A further goal is to research and identify areas where the existing manufacturing supply chain can collaborate with “Northern Ireland’s cybersecurity and technology sectors to target emerging opportunities in new sectors and aerospace with a view to the decarbonisation of aviation”, placing emphasis on markets where the Northern Ireland Aerospace supply chain and associated technology supply chain can compete.

UK publishes 10-point plan for ‘green industrial revolution’

This week UK Prime Minister Boris Johnson published a 10-point plan for a ‘green industrial revolution’. The plan aims to create and support up to 250,000 jobs. The points of the plan are:

  1. Producing enough offshore wind to power every home.
  2. Increasing the production of low carbon hydrogen, with the aim of developing the first town heated entirely by hydrogen by 2030.
  3. Advancing nuclear as a clean energy source.
  4. Accelerating the transition to electric vehicles and transforming the national infrastructure to better support electric vehicles.
  5. Making cycling and walking more attractive ways to travel and investing in zero-emission public transport of the future.
  6. Supporting industries that are difficult to decarbonise to become greener through research projects for zero-emission planes and ships.
  7. Improving energy efficiency of homes, schools and hospitals, and installing 600,000 heat pumps every year by 2028.
  8. Becoming a world-leader in carbon-capture technology, with a target to remove 10MT of carbon dioxide by 2030.
  9. Protecting and restoring our natural environment, and planting 30,000 hectares of trees every year.
  10. Developing relevant cutting-edge technologies and making the City of London the global centre of green finance.

Read more about this plan at gov.uk.

Agreement reached to create world’s largest trading bloc

15 countries have agreed to set up the world’s largest trading bloc. Called the Regional Comprehensive Economic Partnership, or RCEP, its aim is to reduce barriers in an area covering one-third of the world’s population and economic output. The countries in the bloc include China, Japan, South Korea, Australia and New Zealand, as well as the countries in the 10-nation Association of Southeast Asian Nations (ASEAN). These include Cambodia, Indonesia, Laos, Burma, the Philippines, Thailand, Brunei, Singapore, Malaysia and Vietnam. The deal followed eight years of negotiations, which culminated at the annual summit of the 10-nation Association of Southeast Asian Nations (ASEAN), hosted by Vietnam.

Although the deal is not expected to integrate member economies as the EU does, it does build on existing free trade arrangements, and will further reduce already low tariffs on trade between member countries.

Read all our updates on our Public Policy web centre.