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Dáil Éireann debate -
Wednesday, 29 Apr 1998

Vol. 490 No. 3

Ceisteanna — Questions. Priority Questions. - Pay-Related Social Insurance.

Jim O'Keeffe

Question:

1 Mr. J. O'Keeffe asked the Minister for Social, Community and Family Affairs the best estimate available of the number of self-employed who were over 56 years and had to pay PRSI on the extension of social insurance to the self employed in April 1988; the estimated number of those who have in the meantime qualified for non-contributory pensions; the number of those who have been refunded 53 per cent of their contributions; if a pro-rata factor has been included in previous estimates of the cost of payment of contributory pensions to those self-employed who made contributions since 1988 and have been denied payment of any pension; and, if so, the way in which this pro-rata factor has been included. [10195/98]

It is estimated that there could have been up to 20,000 self-employed people over age 56 when PRSI was extended in 1988 who are registered for PRSI purposes. As I indicated recently during the debate on the Social Welfare Bill and in earlier replies to parliamentary questions, the net additional cost of paying a full rate old age contributory pension to all this group would be of the order of £50 million per annum, equivalent to a capitalised cost of some £475 million over the full period of the payments.

The £50 million estimate is based on the payment of a full rate of pension and qualified adult allowance where applicable to this group and takes account of the value of the free schemes. It is an estimated net cost as it assumes that about half of the group could already be in receipt of another social welfare payment, for example, a non-contributory old age pension.

As I have already indicated to the House, it is very difficult to get estimates of the numbers and likely costs in this area. I assure the House that I will continue to ensure the broadest possible contributory pension cover to as many categories as possible.

The condition that a person must have entered insurance at least ten years before pension age before he or she is eligible to qualify for the old age contributory pension has been a feature of the scheme since it was introduced in 1961. The purpose of this condition is to ensure that entitlement to the pension is limited to those who have made a reasonable level of contributions to the social insurance fund during the course of their careers.

This ten year condition was supported by the Pensions Board and it is considered to be a reasonable condition. The amendment in the 1997 Social Welfare Act regarding the payment of refund of contributions to this group, which was agreed by the Deputy's party, effectively re-emphasised the position of the ten year test.

I assure the House that any self-employed person who has contributed and does not qualify for either a contributory or a non-contributory pension receives a refund of the pension element, 53 per cent of his or her PRSI contributions with interest, which is a fair arrangement. The position is that self-employed people over age 56 in April 1988 were not excluded from social insurance at that time, as a number of members of this group had earlier class A insurance as employees which they were able to combine with their insurance as self-employed people, class S, to qualify for a pension on retirement. The exclusion of this group in 1988 would have disadvantaged this group. The reduction in the yearly average condition from 20 to 10 years from November 1997 has also been of advantage to this self-employed group. In addition, those with three years' insurance are qualified for a widow or widower's pension.

There have been a total of 3,874 applications for refund, of which 2,868 have been paid to date amounting to more than £2.5 million plus interest — an average of £900 per person. A pro-rata factor has not been included in the £50 million cost estimate. While such an approach would reduce the overall cost, it is clear the cost is still significant and could only be considered in a budgetary context where the proposal would have to be assessed against other competing demands in the social welfare area. A person who is not entitled to a contributory pension is entitled to a non-contributory pension, subject to a means test.

Does the Minister accept that there is justice in the case I am making on behalf of those who were obliged by law to make contributions to a pension fund and who, because of their age, are denied the possibility of getting any such pension?

This situation created an anomaly. However, the National Pensions Board looked at this issue and strongly came down in favour of having a basic ten year rule on contributions. It recommended that refunds be made and the then Government, of which the Deputy's party was a member, accepted its recommendations. In its report on the extension of social insurance to self-employed a number of years ago the National Pensions Board stated: "If persons retire at age 66 after a period of less than ten years since entry into insurance under the new arrangements they should be entitled to a refund of the element of their contribution attributable to old age pensions provided that they do not qualify for a pension on the basis of the contributions already made or on a means test basis. If persons who had already received a refund of contributions apply and qualify for means test old age pensions the amount refunded should be deducted in full from such persons' pension entitlements."

During Second Stage debate in 1988, the Minister stated that he accepted the advice of the National Pensions Board and would make the necessary regulations. However, the issue of refunds and the recommendations of the National Pensions Board were based on the fact that there would be a ten year entry rule which would remain in place. As I said at a previous Question Time, this issue is exercising a great deal of the time of my officials to see whether there is any way in which we can address it. The figures are quite dramatic: an annual cost of £50 million with a capitalised value of £475 million. If there was to be a pro rata pension, as the Deputy suggests, the cost would be less than £50 million but it would still be extremely costly.

That it should take five minutes to respond to a simple question as to whether the Minister sees any justice in the case made is alarming. When replying to the next question, whether he thinks there is justice in this campaign, perhaps the Minister would say "yes" or "no". Will the Minister agree that the cost figures have been scaringly overstated from the beginning? We are talking about a unique group who were aged over 56 in April l988 and who were forced to make these contributions. Everybody else will have the opportunity of getting the ten years but this group did not. Will he accept that the figure for costs quoted, initially £756 million, has been deliberately overstated given that an honest effort has not been made to quantify the actual cost? I suggest the actual cost would be no more than about £20 million per year. The Minister's figure of £50 million is based on the payment of a full rate of pension. I am not asking for the full rate but pro rata. If a person has five years' contributions out of ten he should be given a 50 per cent pension. That is fair. If he is seeking more he will not have my support. I am talking about a pro rata pension. In relation to adult dependent allowance, is it not accepted that most of the adult dependants would not qualify because of the means limit? In relation to the free schemes which he is adding in, does he accept they will be entitled to free travel on reaching the age of 66? Will he accept his figures are deliberately overstated for the purpose of denying a just claim on behalf of this tranche of people, who were forced by the State to make contributions to a pension on reaching the age of 66?

This was one of the issues we considered in Opposition. In our programme for Government we indicated we would examine carefully the possibility of relaxing the position. The far side of the House does not have a monopoly on worry about this issue. Irrespective of what party was in Government in the past ten years, including the Deputy's party, Labour and Democratic Left, it has been unable to deal with this matter. I ask where the priority lay in regard to this issue. My predecessor, Deputy De Rossa, when asked whether there should be a pro rata pension at a reduced rate, said, “I am not aware of any insurance company which would give a person a 50 per cent pension on the basis of contributions made over five years. It would be an extraordinary generous measure. It would also be unfair to the millions of people who made contributions from their weekly wages all their working lives to guarantee a contributory pension when they retired”. He went on to say, “I am not prepared to give commitments of this nature”.

This is an issue which has exercised a number of Governments. The previous Government looked at this matter and felt all it could do was to fulfil the recommendations of the National Pensions Board which was, in effect, to give refunds of the pension element of the payments these people had made — 53 per cent, the balance of 47 per cent being retained by the State to cover widow's and orphan's pensions. I estimate there are 20,000 people involved. It may well be that many of those people would be entitled to a non-contributory pension. Even if the Deputy can convince the Department that we should introduce a pro rata pension at whatever cost, it would be less than £50 million. Even if the cost were £20 million or £25 million it would have to be balanced in respect of all the other demands in my area such as the carers, people with disabilities and so on, all of whom must be borne in mind as priorities for the spending of taxpayers' money.

Will the Minister accept this issue will not go away until justice is done?

I accept this issue will not go away. That is the reason I committed myself at previous Question Times as I have done today. I have indicated that I asked my officials to prepare a paper indicating the actual cost. I expect to see this paper in the near future. Astronomical figures of £750 million were provided but they have been revised down to a capitalised cost of £475 million. That figure is still substantial and takes into account the possibility of savings in one area because people would be entitled to non-contributory pensions. This issue is to the fore in my Department and I expect a paper to be presented to me shortly indicating the possibilities. At the end of the day I may not be in a position to do anything in that this issue is costly and would have to be weighed up in the list of priorities in relation to all the other issues such as carers, people with disabilities and all the other sectors in my Department.

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