I move: "That the Bill be now read a Second Time."
This Bill introduces a number of major improvements in social welfare. It is the most comprehensive piece of social welfare legislation since the early seventies. It includes a number of significant developmental measures which implement several recommendations in the report of the Commission on Social Welfare. The extension of social insurance to the self-employed brings within the system 20 per cent of the workforce who up to now have been excluded. This is the first time since 1974 that social insurance cover has been extended.
The increases in rates, particularly the higher rates for those on the lower payments, demonstrates the Government's commitment to improving the incomes of the less well-off sections of our society despite present budgetary constraints. The introduction of a pre-retirement scheme for the older long term unemployed is also a major development bringing greater flexibility into the unemployment payments system. The Bill also deals with a long-standing anomaly in the old age pensions scheme. Persons who could not qualify for old age pensions, because of gaps in their insurance records due to the operation of the income limits between 1953 and 1974 will now qualify for pro-rata pensions.
The general increase of 3 per cent in social welfare payments will protect their real value, given that the rate of inflation this year is expected to be 2.5 per cent. However, we are giving much higher increases to those on the lowest payments, namely unemployment assistance and supplementary welfare allowance. These increases are a clear indication of the Government's concern to protect those less well-off in our community. By any objective standard they more than meet the Government's commitment outlined in the Programme for National Recovery and agreed with the social partners.
There are three main improvements in rates. These are: (1), a general increase of 3 per cent in widows and old age pensions, unemployment and disability benefit and other weekly payments; (2), an 11 per cent increase in the personal rates of unemployment assistance and supplementary welfare allowance and a 6 per cent increase in the rates for their dependent children; and (3), a streamlining of rates for child dependants involving increases for larger families. In future there will be two different rates per scheme. In general there are four at present.
The Government are committed to maintaining the overall value of social welfare benefits. Last year we brought forward the increases proposed by the previous Government from November to July. We made sure that the income of social welfare recipients was fully protected against inflation up until July. This year again increases will apply from July. This will mean that social welfare recipients will not only be protected against cost of living increases but will receive real increases, particularly those on the lowest payments.
A family with three children in receipt of unemployment benefit will receive an increase of £3.10 per week giving them a new rate of £102.30 per week. A couple on retirement or old age pension will receive an increase of £3.00 per week giving them a new rate of £99.20 per week. A widow with three children in receipt of a contributory pension will get an increase of £2.80 per week giving her a new rate of £93.30 per week. The cost of this 3 per cent across the board increase is £67 million in a full year.
The Bill provides for special additional increases for people on the lowest social welfare payments where the personal rates are being increased by 11 per cent. It is the first time that the position of people on these low levels of payment has been directly tackled by a Government. This is a concrete example of this Government's concern for the less well off members of the community. For example, the personal long-term rate of unemployment assistance in urban areas will now be £42 per week, that is an increase of £4.20 per week. Other personal short-term and long-term rates are being increased pro-rata. This means that those who are on the lowest rates at present, that is £34 per week, will now be paid £37.80 per week. A married couple with three children will get £6.70 extra per week bringing their total to £98.80.
At present, there are 36 different rates of increases for child dependants. The amount payable in respect of a child depends not only on the particular scheme but also on the number of children in the family. Most schemes have separate rates for the first child, second child, third to fifth children and sixth and subsequent children which, in effect, means there are four different rates for children in each scheme.
The Government have decided that a start should be made on streamlining these various rates. Instead of having four different rates there will be two for each scheme. The new rate for the first two children will be the average of the two rates with the 3 per cent increase applied. All families will receive at least a 3 per cent increase in their rate. The rate for the sixth and subsequent child will be increased to that for the third to fifth child. This will mean very significant increases in the rates for these larger families, at a cost of £3 million in a full year. For example, the rate for the sixth child for a family dependent on unemployment benefit will increase by 29 per cent that is, from £7.20 to £9.30 per week; for a widow the increase will be nearly 20 per cent — from £12.10 to £14.50 per week.
A further improvement is also being made in the rates for children of those on the lowest weekly payments. This will give an overall 6 per cent increase in the rates of unemployment assistance and supplementary welfare allowance for these children and will provide a significant improvement in the position of these families along with the 11 per cent increase in personal rates that I mentioned earlier. The total cost of the increases for child dependants is £9.7 million in a full year. For example, a family with two children in receipt of UA at the long-term urban rate will receive an increase of £6.20 per week. Their present rate of £84.20 per week will, therefore, rise to £90.40 from July next. A family with six children in receipt of UA at the long-term urban rate will receive an increase of £9.70 per week to a new rate of £124.00. The overall social welfare package of improvements in payments will cost an estimated £44.8 million, including health allowances, this year and some £101 million in a full year.
The earnings ceiling up to which social insurance contributions are payable will be raised from £15,500 to £16,200, with effect from 6 April 1988. There will be a small increase in the employers' occupational injuries fund contribution from 0.43 per cent to 0.5 per cent from 6 April. This is necessary to ensure the solvency of the fund which, under statute, is funded entirely by employers. At the average industrial earnings, the extra cost per year per employee will be £7.
Section 8 of the Bill provides for an increase from £62 to £66 in the amount of weekly earnings disregarded in calculating the rate of pay-related benefit. This change will affect only new claims from 4 April.
The Bill provides for an increase in the income limits for family income supplement in line with the increases in rates of unemployment benefit. Some 5,300 people now avail of the scheme. One of the commitments in our Programme for National Recovery was that a detailed study would be carried out to identify what adjustments might be necessary to improve the take-up of the scheme. A review is underway and I expect to have the report shortly. The results of this review will guide the future development of the scheme.
Section 9 of the Bill provides for powers to make regulations which would allow for a waiving of interest charged on arrears of social insurance contributions. This will facilitate the special incentive scheme announced by the Minister for Finance to encourage taxpayers to bring their tax affairs up to date.
Part III of the Bill provides for the extension of social insurance coveage to the self-employed. This is an historic development in the social welfare system. The need for it has been recognised on all sides for many years. This Government decided in principle in July last that this proposal would be implemented this year. In the intervening period a lot of work has been done to prepare for the introduction of the new scheme which will come into operation at the beginning of the tax year on 6 April. I want to express my appreciation of the work done by the National Pensions Board who agreed at short notice to examine and report to me on this proposal. The board's conclusions have been of great value to me in preparing my detailed proposals on the scheme.
There are two main reasons for bringing the self-employed within the scope of social insurance. First, it gives self-employed people the opportunity of contributing to pensions for old age or widowhood without a means test. Secondly, it brings greater equity into the financing of social welfare as a whole.
The basis of social insurance is the provision of a basic level of protection as a right and without a means test. Social insurance also involves an element of solidarity and redistribution between different groups.
The Commission on Social Welfare were of the view that the further development of social welfare in this country would be best pursued by expanding and improving the present system. This is the path on which we are proceeding and the extension of social insurance to the self-employed will fill the major gap in coverage identified by the commission.
The self-employed comprise over 20 per cent of the workforce. Up to now they were excluded from compulsory social insurance and left to make their own pension arrangements. Many now rely on means-tested social assistance. Up to 70 per cent of formerly self-employed persons qualified for social assistance pensions for which they had not directly contributed. The result of this policy was inadequate pension cover for a large segment of the population and inequity in the financing of social welfare generally. This year the general taxpayer will contribute £331 million to finance such means-tested pensions.
Compulsory social insurance will ensure that every person with an independent source of income contributes part of that income to financing basic pension cover on a non-means-tested basis. This will ensure that the rate of pension which persons are entitled to receive will not be affected by any assets they have and that their pension payments will not reduce if they supplement those payments in whatever way they wish. Similarly if a farmer or other self-employed person dies his widow will receive a non-means-tested pension for life.
The main provisions of the new scheme are contained in section 11 of the Bill which inserts a new Chapter into the Social Welfare (Consolidation) Act dealing specifically with self-employed contributors. The persons to be covered by the scheme are defined in terms of their sources of income. Self-employed people generally pay income tax under Schedule D. Schedule D income will now for the first time be liable for a PRSI contribution. The contribution will be collected along with income tax and the rules for collection of tax will apply to it. As Deputies will know, significant changes are being made within the tax system for self-employed people designed to make the system more effective, including the introduction of self-assessment. These changes will apply also in the collection of PRSI contributions from the self-employed under Schedule D.
Apart from income under Schedule D certain income under Schedule E will also be liable for contributions under the new system. The main category of people involved are some 40,000 proprietary directors of companies. They are liable for income tax under Schedule E but they are not employed under a contract of service and so are not covered by the social insurance system. Many of these people would also have incomes assessable under Schedule D. The Bill provides that payments, other than earnings arising from employment, made by way of salary by a company and classified for income tax under Schedule E, will also be liable for contributions under the new scheme.
Income under Schedule D includes earned income, that is, income from a trade, profession or vocation. Schedule D also includes, with Schedule F, unearned income, that is, income from rents and income from investments such as dividends and interest. Unearned income is already subject to the health contribution and to the employment and training levy.
Self-employed persons such as directors are sometimes in the position to manage their affairs in such a way that they receive the bulk of their income as unearned income. If contributions were payable only on certain types of income, there would be scope for taking advantage of this to limit PRSI liability.
The Government have decided that both the earned and unearned income of self-employed persons will be assessable for PRSI contributions and reckonable income is so defined in section 10 of the Bill. Capital allowances will be deducted in calculating the reckonable income as recommended by the National Pensions Board. In effect, PRSI contributions will be levied on income as assessed for income tax purposes, as outlined in the Programme for National Recovery.
There are certain types of income which come within the ambit of Schedule E other than employee income and which will be excluded by regulation from liability for PRSI contributions under the new scheme. These include social welfare and occupational pensions which it would not be appropriate to subject to PRSI contributions and income from the holding of public office. The position of public office holders is analogous to that of public servants who are subject to limited insurance which does not include cover for contributory old age pension. The Commission on Social Welfare recommended that full social insurance cover should be extended to public servants and the position of office holders would fall to be considered in that context. The National Pensions Board are preparing a report which will cover the position of public servants.
In addition to exempting certain types of income it is also necessary to exclude certain categories of person from the scheme. Section 12 of the Bill lists the categories of persons to be excluded. The main categories of persons excluded are:
—assisting relatives;
—persons on unemployment assistance;
—persons with income below a prescribed amount;
—employed contributors or occupational pensioners whose only income under Schedule D is unearned income;
—persons in modified social insurance such as permanent and pensionable public servants;
—persons in receipt of widow's pension, deserted wife's benefit or analogous payments.
The National Pensions Board concluded that while the position of assisting relatives calls for further examination they should not at this stage be brought within the social insurance system. I have accepted this recommendation and will consider their position when the board report on pension coverage generally.
In the case of married couples who are partners and who jointly own and operate a self-employment enterprise, they will each be insured as self-employed in their own right with a contribution payable by each and each having an independent right to pension.
Self-employed persons whose income is low may qualify for unemployment assistance at present and it is not considered that persons in this situation should be covered by and required to contribute to the new scheme. Persons in this situation who have previously been insured as employees may be entitled to credited contributions which maintain their entitlement to contributory pensions. Smallholders on unemployment assistance also come into this category. Arrangements will be made by regulations to enable self-employed persons to qualify for credits on similar lines. The National Pensions Board will be examining the whole question of the conditions, including credited contributions, for entitlement to pensions and reporting to me on this matter.
Apart from the exclusion of persons on unemployment assistance, there will also be a general exclusion for people whose total income is below a certain level. This level will be prescribed in regulations, but I envisage that initially at least the level will be set at around £2,500 a year which is approximately the rate of the old age non-contributory pension for a single person. There is already under the scheme for employees an exclusion in respect of employment of inconsiderable extent and an exclusion of this kind is also appropriate in the case of self-employed people. The only feasible way to do this is by reference to income and I consider that a level of around £2,500 per year is a reasonable one.
Other categories whom it is proposed to exclude from the new scheme are employed persons and occupational pensioners whose only other income is unearned income. Persons in modified social insurance such as permanent and pensionable public servants are not covered for contributory old age pension at present because they have adequate occupational cover. They may, however, have some additional income from self-employment. These will also be excluded. Otherwise they could, in return for a relatively small additional contribution, acquire entitlement to contributory pension additional to their occupational pension.
Finally, it is proposed to exclude self-employed persons who are in receipt of widow's pensions, deserted wife's payments and payments under other analogous schemes. A similar exclusion already applies in the case of the scheme for employees in that the categories concerned are not required to contribute towards the costs of the system. It is considered that it should also extend to persons in these categories who are self-employed.
Apart from the excepted categories the scheme will be compulsory for all self-employed persons just as the scheme for employees is compulsory. The suggestion has been made that self-employed persons who are in a position to make their own pension arrangements should be free to opt out on the grounds that this would ultimately result in net savings to the Exchequer. In fact, the opposite would occur. A selective scheme under which self-employed persons on higher incomes opted out would result in the social insurance scheme being left with what might loosely be termed the bad risks and the net cost to the State would therefore be much higher. Every pension scheme is based on a mixture of good risks and bad risks and this is particularly the case with social insurance schemes under which coverage is so broadly based.
Moreover, if the persons concerned failed to maintain their pension cover and ended up with no income in old age or if their survivors had no income, the general taxpayer would be required to provide them with a basic means-tested payment, but no direct contribution would have been paid by them.
For these reasons there will be no question of the scheme being optional or confined to self-employed persons who cannot make their own arrangements. I see no justification for such an approach which conflicts with the whole idea of comprehensive social insurance coverage for basic pensions.
I have given a comprehensive outline of the coverage of the new scheme and the categories of persons and incomes which it is proposed to include. There will be the opportunity to go into this aspect in greater detail on Committee Stage and I hope that I have given sufficient clarification at this time on what is a relatively complex part of the legislation.
To summarise briefly what I have said, all persons who have income which is assessable under Schedule D, estimated at over 200,000, will be liable for PRSI contributions on their taxable income. In addition, certain persons whose income is taxed under Schedule E, principally an estimated 40,000 proprietary directors, will be included. Assisting relatives, persons on low income and certain other categories of persons will not be included in the scheme. The income which will be liable for contributions will, for persons on Schedule D, be income net of capital allowances but inclusive of unearned income and, in the case of proprietary directors, emoluments less superannuation contributions as in the case of employers.
In extending social insurance to the self-employed the Government also decided to bring into social insurance for the first time certain categories of employed persons who had hitherto been excluded. These include registered doctors and dentists, Ministers of religion and members of religious orders. Continuing to exempt these categories from social insurance as employed persons would either result in their having to be totally excluded from compulsory social insurance cover or included but as self-employed contributors. The first option could not be justified when their colleagues in self-employment are being brought into the system. The second option which would in effect result in certain categories of employees being treated as self-employed persons would clearly be anomalous.
In relation specifically to clergy and other persons in Holy Orders, under arrangements made in 1974 they can be brought within the social insurance system in circumstances where the appropriate authority certifies that their exclusion is unreasonable. As a general rule, however, clergy are not covered at present. Clergy may be liable for income tax under Schedule D and as such they will be able to contribute towards the provision of social insurance pensions for themselves. In this context it would not, I feel, be appropriate to continue to exclude from the system those religious who are employed in what might be termed secular employment under a contract of service and, therefore, not liable under Schedule D. The categories involved here would be mainly religious employed in schools, hospitals and other institutions and they will now come within the system as employees, insurable at a modified rate appropriate to their particular circumstances.
Apart from the three categories I have mentioned there are a small number of other categories such as coroners and public analysts employed by local or public authorities whose continued exclusion from the social insurance system would be anomalous in the new situation. There is power under existing legislation to make those involved insurable under the system subject to the normal conditions and I propose to exercise that power. The draft regulations in question must be subject to a resolution in both Houses and they will be agreed concurrently with the passage of the present legislation.
The introduction of the new system will also result in many persons who are or were voluntary contributors under the present system now becoming compulsorily insured. The persons concerned would, as voluntary contributors, have been covered for additional benefits such as retirement pension from age 65, deserted wife's benefit and death grant. To enable them to have maintained this cover it would have been necessary to have provided for three separate voluntary contributions at relatively low rates. This could have resulted in the cost of collecting such contributions exceeding the actual revenue. I am, therefore, making provision in this Bill that any additional benefits for which these persons were insured as voluntary contributors will be maintained in the new situation.
I am also making provision to enable persons who cease to be compulsorily insurable as self-employed contributors to maintain their social insurance cover by the payment of contributions voluntarily. Such persons will be required to pay £208 annually. A flat-rate contribution is necessary in their case as by definition they will not have reckonable income or reckonable emoluments on which an income-related contribution could be levied.
I would now like to turn to the benefits to which self-employed contributors will be acquiring entitlement from 6 April. Under the scheme social insurance cover will be extended to the self-employed for old age and widow's and orphan's pensions. The contribution conditions which apply at present for entitlement to these pensions in the case of employed persons will also apply in the case of self-employed persons. Thus, after four years a self-employed man who is married will have acquired for his family an entitlement to the contributory widow's and orphan's pension.
Under the old age pension scheme self-employed persons will obtain entitlement to the old age contributory pension after completion of a minimum of ten years insurance before reaching age 66. Where persons have completed periods of insurance previously either as employees or on a voluntary basis, those periods will be counted to their credit.
Explicit provision has also been made to avoid anomalies arising in the case of persons who have previous insurance. Deputies will be aware that when social insurance was extended in 1974 to non-manual workers who had been excluded because their income was above the limit for insurability, previous periods of insurance which had been completed when their income had been below the limit served subsequently in effect to deprive them of entitlement to an old age pension. This arose because their contributions were averaged from their first date of entry into insurance. This resulted in their average from that date to the end of the last contribution year before pension age being too low to qualify for pension.
I am pleased to say that this will not arise under the scheme. Persons with previous insurance who become self-employed contributors on 6 April 1988 will be able to choose that date as their date of entry if it is more favourable to them than calculating their average from their previous date of entry. This is provided for in sections 13 and 14 of the Bill.
Persons who fail to qualify for an old age contributory pension will be eligible for the old age, non-contributory, pension on a means-tested basis. Up to the present persons who entered insurance for the first time within ten years of reaching pension age have been entitled to a refund of the old age pension element of the contribution on the basis that they would be unable to qualify for a pension. Such refunds were paid irrespective of whether the persons concerned subsequently qualified for an old age non-contributory pension. As self-employed persons were not compulsorily insurable and as the majority did qualify for the old age non-contributory pension, refunding contributions to employed contributors in this situation was clearly justifiable.
However, it would now be difficult to justify such refunds when virtually all persons whether employed or self-employed with an independent income are required to contribute. Persons who qualify on means grounds for a pension receive a substantial entitlement fully financed by the Exchequer. If they have contributed for even a short period as insured persons, such contributions should, in equity, be regarded as in part contributing to the cost of the old age pension. The National Pensions Board referred to this matter in their report and recommended that the refund of the old age pension element of the contribution should only be made, provided the person concerned does not qualify for a pension on a means-tested basis. I am accepting the advice of the National Pensions Board in this regard and the necessary provision will be made in regulations.
Representations have been made to me in relation to self-employed persons who have never been insured before but who, because they have less than ten years to go before pension age, will not under the present rules be able to qualify for an old age pension. My Department examined in detail the possibility of making provisions to enable such persons to continue paying contributions after age 66 until they had ten years of insurance completed. The potential cost of this concession, however, would be prohibitive. It was estimated that in year 11, the first year in which the persons concerned would qualify for a pension, the additional cost of paying them the pension would be £40 million for the full year alone. This would significantly exceed the total amount of contributions collected from them in the previous ten years and would be a continuing cost over the following years. Accordingly, they have not been included.
The National Pensions Board concluded that the conditions for entitlement to invalidity pensions as they apply at present to employees would not be appropriate for the self-employed. They undertook to deal with the whole question of invalidity pensions in a future report and recommended that, in the meantime, pension cover for this contingency should not be provided. I accepted the advice of the board and recommended to the Government that invalidity pension cover for the self-employed be postponed until I receive the board's report.
The pensions board, while recognising the importance of a retirement condition in the case of the self-employed, also decided not to make a recommendation on this issue until they had more time to consider it. The Government decided that old age pension cover for the self-employed would, for the present, be on the same basis as for employees, namely a pension from age 66 without a retirement condition.
The pensions board will be examining the desirability and feasibility from an administrative point of view of introducing a retirement condition that would be applicable in a fair and equitable manner both to employed and self-employed persons.
The one aspect of the proposed scheme that has given rise to most discussion has been the cost of and financing arrangements for the scheme. Concern has been expressed that the scheme will put a long term financing burden on the Exchequer and that the rate of self-employment contribution is not high enough. Much of the comment which has been made has not, however, been well informed.
A majority of the members of the National Pensions Board recommended that, on grounds of equity, the rate of contribution should be the same as the combined employer employee rate for old age and widow's and orphan's pensions — that is a rate of 6.6 per cent when allowance is made for the tax relief on the employer's contribution. The board recognised, however, that in setting the rate of contribution the Government would have to take into account the ability of the self-employed to pay the rate recommended. This is, of course, what the Government did in deciding to phase in the contribution to be paid over three years. Thus the contribution will be 3 per cent in the contribution year 1988-89, 4 per cent in 1989-90 and 5 per cent in 1990-91 subject to a minimum contribution of £208 and this is explicitly provided for in the Bill.
The minimum contribution for people paying income-related contributions, as I explained in my speech on the budget, is necessary in the case of the self-employed as, given the fact that capital allowances are deductable for PRSI purposes, self-employed persons with high capital allowances who would otherwise have a reasonable level of income could end up paying a very small amount by way of a self-employment contribution. A minimum contribution of £208 or £4 per week is reasonable in these cases.
The Government also accepted the view of the National Pensions Board that it is necessary to have a system of flat-rate contributions for those whose incomes are below the level at which they are regularly assessed for income tax by the Revenue Commissioners. It was concluded that a flat rate contribution of £208, equivalent to the minimum contribution for those paying income-related contributions would not be justified. The level of flat rate contribution for people in this situation has been set at £104 per annum which is the equivalent to £2 per week.
In deciding on the rate of contribution to be charged, the Government have to ensure that the yield from the contributions is adequate to meet the additional cost of the proposed scheme and at the same time reduce the existing burden on the Exchequer of financing social welfare pensions for the self-employed. The first issue in this regard is the overall cost of the scheme and the estimates of the cost over a 50 year period have been set out in the report of the National Pensions Board. Given the speculation in recent weeks about the impact of the proposed scheme on the Exchequer I would like to refer in some detail to these costs. The board showed that the additional costs, over and above the costs of continuing the present arrangements, will be £6 million in year five, £21 million in year ten, £73 million in year 20, £99 million in year 30, and £89 million in year 50.
Much of the erroneous speculation referred not to the cost but to the anticipated yield from the self-employment contributions. It was based on a misunderstanding of the yield for 1988 of £15 million referred to in the Financial Statement of the Minister for Finance on budget day. That £15 million is the estimated yield of a 3 per cent contribution to be collected in an eight month period only from April to 31 December this year. No account was taken in that estimate of any yield from the flat rate £104 contribution as the collection arrangements for that contribution will not be operational in time to effect any significant yield this year. However, some commentators seem to have taken this £15 million as the estimated yield from a 3 per cent contribution and calculated that this is equivalent to £31 million from a 5 per cent contribution in a full year. This explains why they concluded that the new system could give rise to a major additional burden on the Exchequer.
The Revenue Commissioners have estimated that in a full contribution year the actual yield from a 5 per cent contribution would be £45 million and that the flat rate contribution would yield an additional £5 million when the collection arrangements for this contribution are fully operational. This estimated yield, moreover, is based on the incomes of the self-employed in recent years which, especially among farmers, was low relative to what it has been this year. It is also based on the collection performance of recent years which is now being significantly improved. I am confident that the yield estimated by the Revenue Commissioners is, in fact, conservative and that the actual yield may prove to be significantly higher.
The Government in setting the rate of contribution are budgeting for a yield of £50 million per year on a conservative basis. By the end of year ten the total income from self-employed contributions will have exceeded additional expenditure arising from the scheme by around £360 million over the period. The income from these contributions will be paid directly into the Social Insurance Fund and will have the effect of reducing the Exchequer subvention into that fund. This, of course, will in turn have the effect of reducing the Exchequer borrowing requirement up to the year 2000 and result in substantial savings on interest during this period. This aspect must be borne in mind when the overall financial impact of the proposed scheme is being examined.
There has been much comment during the past few weeks that the Government, in introducing this scheme, are just concerned with achieving a short term improvement in the State's finances at the price of incurring major liabilities in the longer term. This is not the case. The introduction of this scheme will effect a significant improvement in the State's finances over the next decade and at a time of severe difficulties on that front this has to be seen as a very positive development. But the Government are also determined to ensure that the overall effect of the scheme over the full 50 year period will be to provide a net gain to the Exchequer.
Although the Government accept the estimated costs of the proposed scheme as set out in the report of the National Pensions Board, the estimates of the yield from the contributions may be too conservative. I consider that over the next few years the income of the self-employed will be higher than it has been in recent years and the collection performance significantly improved, which will result in a higher yield than has been estimated.
For that reason specific provision is made in the Bill in section 17 C (e) that a review of the scheme will have to be undertaken in the period October to December 1990. At that stage data on the actual yield from the contributions will be available and there will be a solid basis for determining the adequacy of the percentage rate of contribution being charged vis-à-vis the benefits being conferred.
In fact, by that stage the final report of the National Pensions Board will be available which will, among other things, contain a detailed examination of the projected cost over a 50 year period of the existing scheme for employees. The Government intend that this report, together with the report on social insurance for the self-employed and the other reports of the National Pensions Board, should form the basis of establishing a comprehensive national pensions system under which both statutory and private occupational pension schemes will be placed on a sound financial footing. Thus existing and future pensioners will have a certain level of pension guaranteed and the burden of financing pensions on both contributors and the general taxpayer will be spread on an equitable basis.
Those whose incomes are subject to Schedules D and F will pay the social insurance contribution, health contribution and employment and training levy with their income tax. The Government have decided that collection of the self-employment contribution, health contribution and employment and training levy should be combined with income tax in the case of Schedule D taxpayers in the same way as the PRSI contribution is combined with income tax under the PAYE system.
Under the new system a distinction will be made between these contributions and income tax for accounting and other purposes, but no distinction will be made in collection and enforcement procedures. Thus when a person subject to Schedule D receives his demand for tax, the amount charged will include income tax and PRSI contributions. The new system will be much more cost effective, will result in much greater compliance on the part of contributors and will also be more straightforward for contributors who will now have just one tax demand to deal with.
In the case of those self-employed contributors, for example proprietary directors, who are subject to tax under Schedule E, they have hitherto been liable for a Class K contribution of 2.25 per cent which represents the health contribution and employment and training levy. From April they will be liable for a new Class S contribution which will include in addition to the existing 2.25 per cent, the extra 3 per cent PRSI contribution, increasing to 4 per cent and 5 per cent in line with the contribution of self-employed contributors generally.
The income-related contribution of 3 per cent, 4 per cent or 5 per cent subject to the minimum of £208 per year, will be collected by the Revenue Commissioners and liability will commence from 6 April next. The Revenue Commissioners will also have a role in relation to the collection of the flat-rate contribution of £104 from persons who are not being regularly assessed for income tax. A notification informing the people concerned that they are not required to make a return of their income will be issued by the Revenue Commissioners in each case and those involved will also be informed that they may be liable for the £104 contribution.
Whether they actually have to pay that contribution will depend on whether their income exceeds the minimum level of £2,500 for inclusion as a self-employed contributor. The notifications from the Revenue Commissioners to the people concerned will have issued in the bulk of cases by the end of the summer. I am taking the necessary powers in the Bill to enable the actual liability for the first year in these cases to be prescribed in regulations. The precise mechanism by which the £104 contribution will be collected and the date of commencement of this aspect of the scheme are under examination at present and the details will be announced in due course.
Sections 19 to 22 of the Bill contain a series of measures in relation to prosecutions, proceedings and increases in fines for offences in relation to the Social Welfare Acts. Section 19 provides that an offender shall not get the benefit of the Probation Act until such time as any amounts due to be repaid to my Department have been repaid. Section 20 is an omnibus provision which consolidates the existing provisions in relation to proceedings and prosecutions for offences under the Social Welfare Acts.
Sections 21 and 22 provide for increased penalties and fines for prescribed offences for employers and employees under the various insurance and assistance schemes. The maximum fine for conviction on indictment is being increased from £3,000 to £10,000 and the maximum term of imprisonment is being increased from two to three years. This will bring the provisions into line with those provided for in the Social Welfare (No. 2) Act, 1987. Certain fines for lesser offences are also being increased.
Deputies will know that a great deal of work has been done in preventing fraud and abuse of the social welfare system in the last year. At last we are making headway in tackling this issue. There can be no doubt that the vast majority of claimants are entitled to their social welfare payments and would not dream of trying to "make" on the system. However, there are some unscrupulous employers and employees who seize any opportunity to exploit the system or, indeed, to manipulate it to their own benefit whether fraudulently or otherwise. These people have no regard for the legitimate rights of the vast majority of social welfare claimants. They have no sense of responsibility towards the hundreds of thousands of taxpayers who maintain the social welfare system for those of their fellow workers who are no longer in a position to maintain themselves and must, therefore, depend on social welfare payments.
Since taking office I have shown my commitment to stamping out abuse. Measures which have been taken to date include the setting up of an external control unit in my Department. This unit's main activity is to interview people where there is reason to believe that they are not entitled to the payments they are claiming and I am expanding significantly this unit from 19 to 32 personnel. I am also expanding, by 15 staff, my Department's commitment to the joint inspection unit which has, up to now, operated on a pilot basis.
Section 23 is a technical amendment to the disability benefit scheme which provides that, for the purposes of determining whether a claimant has exhausted 52 weeks entitlement to disability benefit, only claims which occurred during the previous six years will be taken into consideration. It introduces a cut-off point of six years beyond which previous claims will not be reckoned. This will affect only a very small number of claims and will operate to the claimant's advantage.
The opportunity was taken in last year's Social Welfare Act to round to the nearest 10p the weekly social insurance and assistance personal rates and increases for adult and child dependants. The purpose of the rounding was to simplify as far as possible the large number of payments now being made. Section 24 applies to amounts of injury benefit and unemployment assistance payable for periods of less than a week while section 25 provides that the scale of rates for unemployment assistance purposes will be in units of 10p rather than 5p as heretofore.
The purpose of section 26 of the Bill is to remove the obligation on urban local authorities to contribute towards the cost of unemployment assistance. The contribution which has been in operation since 1933 and which is based on rateable valuation amounts to about £0.5 million per year. In the context of annual expenditure on unemployment assistance of £444 million and in the light of the size of the Exchequer contribution to local authority financing, the current contribution is largely anachronistic at this stage. The amount involved will in future be met by the Exchequer.
Section 27 of the Bill provides for an amendment to the Employers' Employment Contribution Scheme Act, 1981, so as to permit the unspent funds of the scheme to be transferred elsewhere. The purpose of the scheme, which operated for a period of one year, 6 April 1981 to 5 April 1982, was to maintain employment levels in the textile, clothing, footwear and leather industries. It was funded by employers to the extent of an additional 0.2 per cent on their share of the PRSI contribution. At present, there is a balance of about £15,000 remaining in the scheme's account and about £370,000 awaiting transfer from my Department. This arose from delays in the collection of contributions for the year in question arising from liquidations and receiverships. The provision in the Bill enables both existing and future funds to be transferred to the occupational injuries fund which is financed entirely from contributions from employers.
I now come to a new pre-retirement scheme which is part of my on-going efforts to introduce flexibility into the unemployment payments system to cater for the needs of particular groups. The rapid increase in the numbers unemployed in recent years has highlighted the fact that there is a great diversity of groups of unemployed persons on the live register. Some are prepared to accept part-time jobs in the hope that they will lead to full time work; others would like to use this period of enforced inactivity in a constructive way by improving their educational attainments. Some persons would like to become involved in community activities and volunteer their services for the good of their communities. I have always felt that we should cater for the varying needs of the unemployed in so far as this is possible within the confines of my Department's main business which is to provide income maintenance to those not in a position to support themselves or their families.
Deputies will know that I propose to extend the part time job allowance scheme nationwide from April 1988 and that I am interested in increasing the scope of the educational opportunities scheme which I believe has great potential for the unemployed many of whom left school early and feel they have little possibility of competing successfully with younger, better educated and skilled workers.
One further group on the live register which we can cater for are the older long term unemployed and provision is being made for them in this Bill. The pre-retirement scheme is intended to provide more flexible arrangements for older unemployed people many of whom regard themselves as semi-retired and not really members of the labour force. At present, these people are required to sign on each week at their local office where they receive their cash payments. This new scheme would relieve claimants of the necessity of attending the local office while, at the same time, providing them with alternative arrangements for receiving their basic income maintenance entitlement. Section 28 of the Bill sets out the basic conditions to be satisfied by a person in order to be eligible for the pre-retirement allowance.
The scheme will be optional. Those who qualify for the allowance will be paid by pension order book which can be cashed weekly at their local post office and they will not have to attend the local office to sign on. However, they will be asked periodically to confirm that they are still, in fact, retired. Initially, the scheme will be confined to persons over 60 years of age who are entitled to the maximum rate of unemployment assistance.
The purpose of section 29 of the Bill is to extend the scope of the occupational injuries benefit scheme to unemployed persons undergoing training courses provided by ACOT and CERT. FÁS trainees (formerly AnCO) already have cover for occupational injuries benefit and also have contributions credited to them during periods of training. It is proposed to provide a similar facility in relation to ACOT and CERT trainees.
Section 30 of the Bill provides that regulations may be made giving entitlement to pensions at a reduced rate to those persons who, having earlier left the insurance system, came back into insurance on 1 April 1974 when the earnings limit for insurability was abolished and all workers became compulsorily insured, irrespective of their income.
Before 1974 non-manual workers were excluded from social insurance if their earnings exceeded a prescribed limit. This limit was increased from time to time and, consequently, some persons found themselves in and out of insurance for periods as their earnings fluctuated above and below the limit in force at the time. They now find themselves adversely affected when they reach pension age because of the intermittent nature of their insurance records prior to 1974. The yearly average of contributions necessary for qualifying for pension in their case is calculated over a long period going back to when they first became insured and is diluted by the gaps in their record caused by the periods when they were out of insurance. Consequently, the minimum average number of contributions necessary is not satisfied in their cases and they do not qualify for pensions.
By contrast, those who had never been insured prior to 1 April 1974, because their earnings were reasonably high and they were over the insurable limit, have the yearly average number of contributions calculated over a shorter period which only goes back to 1 April 1974, the date they first became insurable. Thus, it can happen that this latter group may qualify for pension on the basis of relatively short periods of contributions while others who may have contributed over a longer period and overall have paid a greater number of contributions may not qualify for a pension at all.
I have been very concerned about this anomaly for some time as I know other Deputies in the House have been. The plight of this group of former workers was highlighted in the report of the Commission on Social Welfare. This provision will enable me to do something for the 1,250 persons now involved. Following the enactment of this legislation, I will be making regulations providing reduced pensions for them in line with the commission's recommendations with effect from October next.
The Bill provides for the transfer of information, whether computer-based or otherwise, between the Department of Social Welfare and the Revenue Commissioners so as to facilitate the proper administration of social welfare schemes including the registration of self-employed contributors. Provision is also being made for the transfer of information between the Department and other specified bodies such as local authorities and health boards for the purpose of the administration of social welfare schemes and other schemes administered by these bodies.
I said at the outset that this Bill is a major piece of legislation which contains a number of very significant improvements in the social welfare code. In particular, the extension of social insurance to the self employed is a measure which is long overdue and which will fill a major gap in the present system. The other provisions in the Bill also represent very significant improvements for people who depend on social welfare. I am very pleased to be in a position to bring this package of measures before the House and I commend the Bill to the House.
