Thought Leadership articles

First mooted in 2006, automatic enrolment into a new workplace private pension scheme (auto-enrolment) looks set to be finally introduced in Ireland for private sector workers following an announcement at the end of March 2022 by Minister Heather Humphreys of plans to enrol an estimated 750,000 people in 2024. Auto-enrolment, hailed by the Minister as a “once in a generation policy”, has worked well in other countries such the UK, New Zealand and Australia. Much of the focus in Ireland to date has been on reducing future spending on pensions rather incentives to increase private pension coverage. This is not surprising given that the State Pension is the single biggest cost to the State in terms of benefits. €6 billion was spent on the State Pension in 2020, far exceeding the €4.5 billion spent on the Covid-19 Employment Wage Subsidy Scheme in the same year. It is widely recognised that Ireland urgently needs to change its culture around saving for retirement and, with changing demographics, pressure on the State to continue to fund the State Pension will only grow unless private pension coverage is increased. In 2021, the Central Statistics Office (CSO) reported that 34% of Irish workers have no pension provision other than the State Pension. Life expectancy in Ireland is currently 90 years for men and 92.6 years for women, which means that workers, on average, will be retired for more than a quarter of their lives, with one third of the population depending solely on the State to fund their later years. While the current annual State Pension of circa €13,000 might seem reasonable if you have paid off your mortgage, Ireland’s home ownership rate in 2021 was reported to be 68.7%, meaning that people many will still be paying high rents in retirement long after their peers own their own homes. With average annual rents in excess of €15,000, according to the Residential Tenancy Board’s 2021 rent index, sole reliance on the State Pension will not be sustainable. As inflation drives household running costs to new highs, it is understandable that the option of saving for retirement is the easy one to overlook. Depending on contribution levels, auto-enrolment presents an opportunity to plan more adequately for retirement. Before auto-enrolment starting a pension required a worker deciding to do so. After auto-enrolment, if the same worker does nothing, a portion of their pay will automatically go into the new workplace pension scheme, with an option to opt out. The system relies on behavioural inertia, trusting that many people will not opt out and will stay invested. This has been the experience elsewhere. A study carried out for Department of Work and Pensions in the UK looked at 50 employers across the public and private sector and identified the opt out rate at just 9%. Applying this rate to the numbers targeted for new scheme in Ireland could result in 682,500 additional private pensions for Irish workers. Expectations of final pension fund values will need to be carefully managed as starting contribution levels of 1.5% by both employer and worker are relatively low. A single person on the average industrial wage of €40,000 can expect to pay €600 into the pension scheme each year. The employer will pay the same and the State will pay €200. While auto-enrolment will inevitably increase private pension coverage, it cannot be implemented overnight. January 2024 has been identified as the starting date, but there are a lot of hurdles to overcome in advance of this date, including legislation and the establishment of a Central Processing Authority to oversee the scheme. Employers and payroll service providers will need sufficient time and guidance to ensure they can roll out the new pension system once the necessary legislation is in place. Payroll service providers have indicated that this project will take approximately 18 months once full guidance is received, meaning there will be a long lead time involved in building the system. Given Ireland’s demographics, it is important these plans are not further delayed as the pension problem is only growing. Minister Humphreys has provided assurances that the State Pension will remain the bedrock for retirees, despite much debate in recent time as to how this will be funded and at what age received. Nevertheless, to reduce the reliance on the State Pension, people need to be incentivised to start saving for their pensions while they are earning. The new auto-enrolment system, if rolled out without delay, might just be what is needed to ensure that people can enjoy their retirement. Miriam Donald, Public Policy Manager, Chartered Accountants Ireland.

This article summarises Chartered Accountants Ireland’s response in March 2022 to the Irish Government’s Consultation on the Digital Connectivity Strategy, which is a sub-strategy of the national strategy, Harnessing Digital – The Digital Ireland Framework, launched in February 2022. The Digital Connectivity Strategy is primarily focused on enabling the delivery of the digital infrastructure dimension, setting out the ambition level and the strategic enablers and initiatives needed to ensure the ambition is met. It seeks to position Ireland as a digital leader, driving and enabling digital transformation across the economy and society. The consultation asked for input from interested parties in relation to six specific questions. We responded to three of these questions, engaging with the Institute’s Technology Committee to ensure that responses are in line with the views of our members working in this area. In our introduction, while we recognise Ireland’s ranking as 5th among EU Member States in the Digital Economy and Society Index (DESI), we believe our digital plans need to be even more ambitious to promote ‘Ireland Inc’ and support our ability to attract foreign direct investment (FDI). We also note how the hybrid working model’s success will depend on the availability of reliable broadband and enhanced digital training of the workforce. The pandemic has highlighted issues in rural areas and the digital divides that exist between different groups and sectors. We need to ensure that every citizen living in Ireland has access to the internet via high-speed broadband, which will substantially increase Ireland’s standing on a global stage and bring economic benefits. Addressing the first consultation question in relation to the ambition level of the strategy, we suggest that the level be even higher and note our concern that the National Broadband Plan is already falling behind schedule. We also recognise that a shift to 6G technology will immediately be upon us when we reach the 5G 2030 goals. We suggest that this strategy is reviewed and updated every two years to ensure that it evolves quickly enough to keep pace with change. A whole of Government approach is needed and we suggest creating a separate portal on gov.ie, presenting all sub-strategies in one place, which could be used to communicate progress to stakeholders of all sub-strategies as well as the overall strategy. We welcome the strategy’s recognition of the need to facilitate and promote research and innovation in the sector, which we see as key to achieving the desired outcomes of the strategy. The second consultation we address asks how Ireland can ensure it has a sufficiently skilled workforce and the State’s role in developing this area. We recognise the talent shortage Ireland is experiencing and that a dynamic thought process is needed by the Government to ensure that people with the right skills will be available to implement its digital transformation plans. Salaries for senior cybersecurity jobs in the public sector will need to be reviewed to ensure the right calibre of candidates are attracted. Standard applications in the Critical Skills Occupation List category currently take circa 17 weeks to process; we welcome any progress that can be made in shortening processing times. The State has a leadership role to play in educating our population to support the improvement of digital skills. According to the DESI, although Ireland performs above the EU average in advanced digital skills (for example, for the indicators on ICT graduates and ICT specialists), the basic digital skills of the population are lower than the EU average (53% against 56%). It is important that Ireland continues to focus its efforts on improving the basic digital and software skills to ensure that the workforce is equipped to undertake current and future roles. We recommend that efforts are made at the primary and secondary school level to equip children and young people with the skills needed to do the jobs of the future. We welcome the €50 million funding announced in December 2021 for schools to address the digital divide, funded under the EU’s Recovery and Resilience Facility. We recognise the importance of the Science, Technology, Engineering and Mathematics (STEM) disciplines and encourage a strong focus in terms of attracting students to take on these subjects. Coding and cybersecurity should be built into school curricula. Ongoing, long-term initiatives aimed at upskilling and reskilling in higher education are also required in addition to initiatives like Springboard+, Adult Literacy for Life, and those from Science Foundation Ireland, Enterprise Ireland and Solas. There may also be scope to develop specific training programmes (similar to the Assured Skills Programme in Northern Ireland) in cybersecurity with large technology companies, which would gain from the engagement with potential employees, good publicity and the wider development of relevant skills in the workforce. The final question addressed in our consultation relates to general observations. We identify cybersecurity and data protection as key areas that require adequate resourcing. As trust is especially important for attracting FDI, we need to ensure that we continuously enhance skills in these areas and communicate our progress. We have a particular interest in sustainability and with the net zero goal for 2050 in mind, we believe that the Irish Government will need to do more than just “conduct analysis into positive and negative impacts of digital technological changes on sustainability” as stated in the strategy. All aspects of the strategy will need to be rolled out in a carbon neutral way. In our conclusion, we recognise that the Digital Connectivity Strategy is a key driver for the future of Ireland’s connectivity and competitiveness and essential for hybrid working practices. Inadequate broadband capacity will undermine the ability of regionally located businesses to compete nationally and internationally and will prevent people living in rural areas from working remotely. Improved broadband infrastructure will enable rural-based businesses to create employment in their local communities, as well as supporting the transition to sustainable and circular economies. Education and research are key; labour shortages and ever-evolving technological advances create big challenges but also opportunities for the strategy’s success. The area of cybersecurity is of particular concern, considering the developing sophistication of cyberattacks and the importance of trust for the Irish economy. We welcome all progress in the strategy’s goals and suggest continuous engagement with all parties responsible for implementation to ensure delays are identified and a path back to the plan is developed. The full response is available on our website.

Tackling climate change will mean embracing economic models that prioritise the many, not just the elite few, writes Kate van der Merwe. In the pursuit of a holistic and inclusive economy that can serve current and future generations, we need to take a fresh look at our economic alternatives.  We are facing existential challenges: a climate crisis that we continue to escalate; a biodiversity crisis that is the sixth mass extinction; and significant inequities that the coronavirus pandemic has served to both highlight and exacerbate.  We must review how our economy works with a focus on real value and equity. In doing so, let’s scrutinise the underlying assumptions and realities, and consider alternative options, including the transformative innovations of social and circular economies. The current context Traditionally, economics is often framed as the study of how people make choices and allocate scarce resources over time, individually and collectively — for example, forsaking consumption now for later benefit (in finance, the choice to invest). Key concepts include ‘utility’ (the satisfaction from something) and ‘consumption.’  The relationship between both is represented by the ‘utility curve,’ which defines utility in direct and positive relation to consumption. Simplified, this means that the more we consume, the happier we are.  In finance theory, utility becomes defined in terms of monetary value. The concept of ‘consumption’ also defaults to a narrow definition of a one-time event. When supply meets demand in the market, for example, economic actors (businesses) are driven to mass-produce for one-off transactions, placing emphasis on short term profits.  When core concepts are so narrowly defined, the underlying utility or value is distorted. By focusing so narrowly on monetary value, we can become disconnected from the real value of the ‘thing’ money is buying and being valued upon. An investor following these limited definitions might, for example, invest in a high-yield mining company even if those yields are derived from destroying the health and wellbeing of their community, and feasibly worsening the investor’s overall utility, particularly in the long term.  If we assume that the fulfilment of our essential physiological needs has the highest incremental utility, then a theory assuming and supporting insatiable consumption — despite the consequences of that consumption threatening our essential physiological needs — appears contradictory.  As the COVID-19 pandemic has highlighted, inequity remains a significant challenge. In the current global economy, just one percent of the population holds 38 percent of wealth, while 50 percent holds just two percent.   During the pandemic, the world’s 10 richest men doubled their wealth. As the average worker faced job insecurity, CEO compensation rocketed. In the US, the CEO-to-worker compensation ratio reached 351:1 (in 1965 it was 21:1).  The pandemic has been a relatively mild precursor to the disruption that is building because of climate change – a threat that we have created, one that our current economic system perpetuates and that we have the power to stem. In facing this disruption, we will need economic models that prioritise the many, not just the elite few.  Alternative approaches Alternative models and ideas include circular, ecological, ‘donut,’ community, collaborative or sharing, social and solidarity economies. Loosely speaking, many focus on or draw inspiration from addressing social inequity and/or the environmental crises.  They look to democratise the economy, to better address systemic inequities, as well as incorporating realistic assessments of nature’s limits, so that we might begin to tackle our self-destructive environmental trajectory. Many of these ideas are not new. They are part of our history.  Their elegance is in their flexibility and compatibility with being layered and combined, an example being a social enterprise engaged in the circular economy. Given the breadth of this topic, this article briefly discusses two of the alternative models: social economy and circular economy. The social economy While the concept of the social economy is long-standing, its definition is evolving. Existing forms of social economy businesses include cooperatives, mutuals and social enterprises. Key features include a core organisational purpose of maximising societal and/or environmental impact, not profit, through the reinvestment of profits, and often incorporating democratic governance.  Existing forms of social economy businesses include cooperatives, mutuals and social enterprises. Within the EU, 2.8 million (10 percent) of all organisations are social economy enterprises, employing 13.6 million people.  While GDP is a problematic measure, the social economy contributes eight percent of the EU’s. One growing and exciting part of the social economy are those social start-ups that are applying innovative solutions to some of our biggest problems, like climate change, often tackling social and environmental issues simultaneously.  During the COVID-19 pandemic, the social economy gained visibility for its resilience and its value creation on a broader scorecard and structural supports are developing.  Last year, when announcing social enterprise funding, Minister for Rural and Community Development, Heather Humphreys, recognised social enterprises for “the invaluable role” they played throughout the pandemic, making “an important contribution in areas such as mental health, social inclusion and the circular economy.” In 2019, the Irish Government published the National Social Enterprise Policy for Ireland 2019–2022, which is also a core component of the State’s plans for rural and community development.  The EU is also scaling up support for the social economy, publishing the Social Economy Action Plan in 2021 for implementation this year, with plans for an EU Social Taxonomy.  A European stalwart of the social economy, based in the Basque Region of Northern Spain, is the Mondragon Cooperative Corporation.  Established in 1956, Mondragon is one of the largest corporates in Spain, with sales in over 150 countries. It comprises a collection of mutually supporting social enterprises engaged in education and innovation, finance, retail, and manufacturing/engineering (including the esteemed Orbea bicycles brand and Urssa, the world-renowned steel manufacturer).  Mondragon is particularly intriguing given its social impact aspirations — the structures and practices it has created to differentiate itself as social (such as maintaining a pay ratio limit of 6:1), while maintaining success in an ill-fitting capitalist economic structure.  Ireland also has its own booming social enterprise sector, with plenty of examples across a wide range of sectors, such as:  FoodCloud (connecting retailers with charities to donate food);  Airfield Estate (a working farm, kitchen, education, and food destination in Dublin); WeMakeGood (Ireland’s first social enterprise design brand) and; Moyee Coffee (“a radical company with radical [Fairchain] impact”). The circular economy The circular economy is also gaining ground, driven by the threat of climate change. The circular economy designs out waste by optimising scarce resources to build a restorative and regenerative economy.  It does this by deploying interdisciplinary systems thinking, i.e. considering complex systems holistically, and incorporating relationships and interdependencies between parts.  A long-term approach to resources, especially minimising the use of raw materials, fundamentally contrasts the circular economy with the linear ‘take-make-waste’ economic system.  The circular economy treats natural resources as scarce, which serves to keep climate breakdown and the threat to our survival front and centre. Maintenance and repair services grow, while production becomes more focused on non-virgin sources, thereafter prioritising regenerative materials. The emphasis is on prolonging the life and utility to be gained from products. This shifts the focus from expiry-bound consumption to ongoing use. The circular economy also diversifies the ways we transact – from individual ownership to shared ownership or rental (product-as-a-service).  The Whole of Government Circular Economy Strategy 2022–2023: Living More, Using Less, the first of its kind in Ireland and the Environmental Protection Agency’s Circular Economy Programme 2021–2027, both launched in December 2021.  These are core to the Irish Government’s drive to achieve a 51 percent reduction in greenhouse gas emissions by 2030 and to reach net-zero emissions by no later than 2050. A Circular Economy Bill is also in development.  Similarly, the EU is enabling the circular economy as part of the European Green Deal, adopting a new circular economy action plan (CEAP) in March 2020.  This action plan introduces both legislative and non-legislative measures aimed at facilitating the transition to a circular economy, including the establishment of the European Circular Economy Stakeholder Platform for sharing and scaling up the circular economy. Examples of businesses successfully applying circular principles include MUD Jeans, which offers a discount on the next purchase or lease for each pair of end-of-life jeans returned, recycling the returns into new jeans, eliminating waste, and using 92 percent less water in production.  Locally, the Rediscovery Centre in Dublin is the National Centre for the Circular Economy in Ireland. It hosts four up-cycling social enterprises in fashion, furniture, bicycles, and paint, as well as an Eco Store, and provides various educational offerings. Traditional businesses are also increasingly incorporating circular elements. Harvey Norman, for example, is offering preowned, refurbished phones. Holistic view While the traditional economy has a limited singular focus on the point-of-purchase, many of the alternative economy models, such as social and circular, take a more holistic view and can recognise and pursue multiple goals simultaneously.  Such models reflect the complexities of our environment, including the challenges of climate change, and intrinsic value, more accurately. These alternative ideas are also more dynamic. They can be combined with one another and enable better designed, more resilient outcomes.  Greater care is taken in defining what an organisation does as well as how it does it, generating more equitable outcomes by holistically considering impact, and providing greater long-term efficiency in synthesising society’s needs and the management of scarce natural resources.  In doing so, these alternatives better address critical unpriced externalities and offer ways to change our current self-destructive trajectory. Our traditional economy appears to focus on scarcity of value, durable efficiency, and resources, while the alternative economy models focus on their regeneration and restoration.  These alternative ideas offer fundamentally different approaches in how value is created, measured, and maintained, and are better suited to the holistic and inclusive economy needed by current and future generations. Kate van der Merwe, FCA, is a Sustainability Advocate and member of the Institute’s Sustainable Expert Working Group.