The aim of this presentation is to address the pensions and social welfare issues arising from the presentation to the committee on women in agriculture on 13 October 2005. The Chairman identified the issue of pensions for farm women as one for discussion with the Minister for Social and Family Affairs. Following a brief overview of the social welfare system to put these issues in context, the social insurance status of farm spouses is addressed in some detail in the main body of the presentation, together with other aspects of the social welfare system that might be relevant. We would be pleased to develop on these items for the committee or provide clarification if it is required.
In international terms, the Irish social welfare system is generally regarded as a mixed system made up of three key elements. Entitlement to specific benefits is determined on the basis of a person meeting clearly defined contingencies and also having sufficient paid contributions over their working lifetime. Contributions are in turn based on reckonable earnings or income. Entitlement to specific payments is made also on the basis of broadly similar contingencies but including an assessment of the person's means to determine genuine need. There is also universal payments payable to all without reference to either a means test or a social insurance contribution record, child benefit being the obvious example. While important in some other countries, universal payments have little relevance for pensions in the Irish system.
The social insurance system is based on both contributory and solidarity principles. The former principle provides a link between the amount a person pays into the system over his or her potential working lifetime and subsequent access to benefits. The latter principle is based on no strict link between the level of contributions and the amount of benefit which might be drawn down, allowing, therefore, for a considerable measure of redistribution within the system.
Social assistance payments are provided on the different basis of established need of the person and financed differently, that is from general taxation revenue. It expresses the solidarity of the population as a whole through its taxpayers to those less well-off in our society. Elements of social insurance, social assistance and universalism can be found in most social security systems. The Irish system, however, differs from many other European systems through its heavier reliance on means tested systems. It should be noted that reflecting the extension of social insurance system, more people are qualifying for the contributory pension
The social welfare system has developed considerably since the establishment of the State with social insurance, assistance and universal systems. It had started before the establishment of the State. Over the past 20 years, the policy orientation of successive governments has been directed at the development of the social insurance system. The commission on social welfare has had a major influence on this approach through the implementation of its recommendations on the extension of social insurance to part-time workers, self-employed and public servants. New benefits such as carers benefit have been introduced and major changes to benefit entitlement conditions have been made.
A social insurance contribution record is based largely on contributions paid into the social insurance system from a person in either employment or self-employment, with allowance made for periods spent out of the workforce through unemployment, illness and caring responsibilities. The social insurance system links access to social protection directly to participation in the labour force and thereby provides an effective mechanism for financing social protection through the collection of contributions based on earnings or income. This contrasts with the tax financing of social assistance or universal payments.
Through its combination of the contributory and solidarity principles, the social insurance system seeks to address the issue of income support in a way that is financially sustainable, avoids stigmatisation of those in receipt of payments and commands wide public support.
Social insurance was extended to self-employed persons in 1988 and this brought many farmers into the social insurance system for the first time. The contribution rate for self-employed persons was and remains considerably less than the combined rate for employees and employers. This is reflected in the fact that self-employed persons have access to a more limited range of benefits, mainly pensions and since 1997, maternity benefit. Self-employed contributors, known as class S contributors, pay a social insurance contribution rate of 3% on all earnings compared with 4% for employees. Both of these percentages exclude the 2% health contribution, which is sometimes included in references to PRSI contributions. The employees are subject to a ceiling on earnings which the self-employed do not have. Employers' contributions vary from between 7.8% and 10.05%. The headline rates are not normally put higher because they include the national training levy at 0.7%.
The position of farm spouses in the social insurance system has been raised by the farming organisations on several occasions. Social welfare legislation defines the conditions for insurability under the social insurance system. It specifically provides that coverage does not extend to a spouse of a self-employed contributor, who is not a partner, where he or she participates in the business of the self-employed contributor and performs the same tasks. While the implications of this provision for farmers is fairly clear, the provision extends to all categories of spouses assisting self-employed contributors, such as electricians or workers in the construction industry.
Many of the legal tests which apply to employment, which are referred to as contract of service, and self-employment, which is known as contract for service, could not be reasonably applied between spouses. Similar issues arise for employment and taxation legislation. For instance, there are similar exclusions for spouses in employment protection legislation enshrined by the Organisation of Working Time Act 1997, and the National Minimum Wage Act 2000.
While this provision does mean the position of a spouse on a family farm is different in its social insurance implications compared with a non-family employee, it need not prevent farm spouses from building up a social insurance contribution record and thereby establishing an entitlement to a contributory pension in their own right. Farming spouses can build up a record of paid contribution in three different scenarios.
Spouses who are actively engaged in a commercial partnership are treated as individual self-employed contributors and are liable to social insurance contributions. These contributions, made under PRSI class S, enable them to build up an insurance record in their own right and to receive accruing benefits.
Where a family business is incorporated as a limited company, spouses involved in the business can establish a social insurance record as either employees or as self-employed contributors, depending on whether a contract of service is judged to exist.
Persons engaged in farming are increasingly taking up off-farm employment. This enables farming spouses who might otherwise not be insured to develop a social insurance record on the basis of their off-farm earnings. Farming spouses who were previously employed are able to maintain their social insurance coverage in the long term by contributing to the voluntary PRSI contribution scheme.
In the context of the first of these scenarios, a partnership is commonly understood to be an association of two or more persons for the purpose of gain or of sharing in the work and profits of an enterprise. Contrary to some preconceptions in this area, liability for PRSI contributions is not contingent on the joint ownership of property but rather on the nature of the business arrangements between the couple.
The exception of spouses from liability for social insurance contributions has been part of our social insurance legislation since at least the 1950s. The legislation has been reconsidered on several occasions. In 1986 the commission on social welfare stated, "as far as possible, assisting relatives, with the exception of spouses, should be treated as employees". In 2002, and in recognition of the need to consider the more specific issue of social insurance contributions for farm spouses, an interdepartmental group chaired by the Department of Agriculture, Food and Rural Development was convened. It concluded that the formation of business partnerships offers an immediate route of access to social insurance cover as it is based on existing legislation, that such arrangements would not impose any significant additional administration costs on farm business: for example, that couples liable for income tax under joint or separate assessment will continue to make one income tax return each year, the only change being that the income of the farm enterprise will be apportioned in accordance with the partnership arrangements. We have given members a copy of that report in our information pack. The issue was discussed again by a working group of social partners established under the Programme for Prosperity and Fairness and re-established under Sustaining Progress. The group, which included a farming pillar, was asked to produce proposals across a range of social insurance areas for the development of a fully inclusive social insurance model that would facilitate combining work and family responsibilities in the context of changing work and social patterns.
Members also have the report of the group, which was finalised this year. In summary, social partners acknowledged the significance of the partnership option and recommended that more information on the tax and social welfare implications of families working either in partnership or a limited company be made available. That recommendation is currently being advanced, and we will be pleased to elaborate further on that work, should the committee so wish.
This is the current information on the partnership option. The Department of Social and Family Affairs already publishes information on this area, and a copy of an information booklet published by the Department on the issue of family employment and insurability under the Social Welfare Acts is included in the information pack. It points to the fact that two or more family members who operate a business as a partnership and share the profits may be insurable as self-employed contributors at PRSI class S, provided that each has a reckonable income of at least €3,174 per year from all sources. The partnership must be genuine and supported by appropriate documentary evidence such as the existence of joint business accounts with banks. There should also be evidence that business activities are in joint names, including invoices, mart and creamery accounts, cash-and-carry accounts, farm grant applications, herd numbers and business insurance policies.
The most important indicator of the existence of a business partnership is the sharing of profits or losses. Income tax returns for each partner showing his or her share of the profits should be available. In the case of married couples making income tax returns under joint or separate assessment, the income of each must be shown. The income tax returns should generally be made on a current-year basis. If it is decided that there is a partnership, PRSI contributions are calculated on the basis of income details contained in the income tax returns.
It should be noted that changes to both the taxation system and the PRSI system have improved incentives for farm families to operate on a partnership basis in recent years. The move in the direction of individualisation of taxation provisions has meant that couples can benefit from wider tax bands than one person alone. The abolition of the ceiling regarding class S PRSI contributions has effectively removed a possible incentive to maximise the level of earnings accruing to a single social insurance contributor.
I will clarify a reference made in a previous presentation to the committee regarding a resolution from the European Parliament on the social insurance rights of farm spouses. The report on women of rural areas of the European Union was compiled by the Committee on Women's Rights and Equal Opportunities to inform the mid-term review of the Common Agricultural Policy of the European Parliament in June 2003. The report acknowledges that the relevant EU directive on the application of the principle of equal treatment between men and women engaged in agriculture in a self-employed capacity has been implemented in all member states. The report recognises that the directive, particularly as it relates to issues of social security, leaves it to individual member states to decide the appropriate level of social security cover for assisting spouses through the accrual of their own rights or derived rights, that is, through the employment of self-employment of the spouse.
There are several other relevant issues outside insurability. Any of the three scenarios I raised, including partnership, would facilitate the accrual of a social insurance record for farm spouses and, consequently, entitlement to a contributory old-age pension. There are several other issues relevant to entitlement to pensions for farm spouses. They concern the potential for payment in respect of qualified adult allowance made directly to spouses, the treatment by the social insurance system of time spent outside the workforce as home-makers, and the changes to conditions for qualifications for old-age contributory pensions and non-contributory pensions in recent years.
Regarding the first of those, the social welfare system provides that new pensions claimants can now opt to have the qualified adult allowance paid directly to their spouse or partner. Furthermore, the administrative and legislative implications of enhancing those provisions are being examined to ensure that more qualified adults can receive that personal payment. That provision will be all the more relevant when account is taken of Government commitments regarding the rate that applies to qualified adult payments. In the programme for Government and Sustaining Progress, the Government committed itself to increasing the payment for qualified adults aged 66 or over to the same level as the personal rate of the old-age non-contributory pension. That process commenced in budget 2000, and several special increases have since been granted. The rate of the qualified allowance of the contributory pension now stands at €138.50 per week, approximately 84% of the maximum rate of the non-contributory pension.
Regarding the position of home-makers and their pension entitlements, the social welfare pension rights of those who take time out of the workforce for caring duties are protected by the home-makers' scheme. Introduced in 1994, it allows up to 20 years spent on caring duties to be disregarded when a person's insurance record is averaged to assess entitlement for contributory pension purposes. While the scheme will not of itself qualify a person for a pension, it is designed to mitigate the effects of periods spent on caring duties when a person's insurance record is being averaged for pension purposes.
Several measures have been taken in recent years to ensure that as many people as possible qualify for pensions in their own right. In 1997, the yearly average number of contributions required for pension purposes was reduced from 20 to ten, and in 2000 a special half-rate pension was introduced based on pre-1953 insurance contributions. Pro rata pensions are also available to allow people with mixed-rate insurance records to receive a payment, and that benefits people who may have worked in both the public and private sectors.
That set of measures is of particular benefit to women who may have incomplete social insurance records owing to working in the home. It is estimated that approximately 87% of women aged 65 years receive social welfare support, either in their own right or as qualified adults on the pension of their spouse or partner. Regarding non-contributory pensions, several measures have been taken to ease the means test. In 2004, the capital disregard was increased to €20,000, and in the recent budget an earnings disregard of €100 was introduced. Those allowances are doubled in the case of couples, and the basic income disregard was increased from €7.60 to €20 per week.
The Government's policy is to extend social protection, primarily through development of the social insurance system. The basis of insurability is mainly through employment or self-employment, with provisions for time out of the labour force. The issue of the insurability of farm spouses has been addressed several times. The employment option is clearly not feasible and is not being proposed by farming organisations. Farm spouses can be socially insured under the self-employment provisions, thereby building up an entitlement to a pension in their own right if the partnership book is followed. The Department provides information in that regard and is speaking to the Revenue Commissioners to see how that might be improved. In the meantime, we would consider suggestions from farming organisations and others regarding how the partnership option might be made more feasible and pension coverage for farm spouses improved.
I thank the committee for the opportunity to make this presentation.
