This measure is designed to make better provision against the loss of income suffered by insured workers and their families during periods of sickness or unemployment than is provided by the existing flat-rate benefits under the social insurance system. Down the years these benefits have been regularly improved in many ways but their main defect is that they are not flexible enough to provide adequately for the different needs of persons who, when working, had not the same levels of earnings and, as a result, had widely differing financial commitments related to their levels of earnings. In many cases, particularly at higher pay levels, the rates of benefit are not high enough to enable insured persons to maintain anything approaching their accustomed standard of living during longer periods of sickness or unemployment.
To raise the flat-rate benefits to a level adequate for the higher paid workers would, however, involve increasing the flat-rate contribution rates to a level that would impose a heavy burden on the lower paid worker. The answer in the scheme proposed in this Bill is to relate both the benefit and contributions to earnings to some degree. There is nothing very novel in the idea of pay-related benefit which exists in one form or another in many countries including Britain. It has been my intention for some time to introduce such a scheme here but it has only now become a practical proposition.
The basic requirements for a scheme of pay-related benefit are to be able to collect contributions based on pay and to have accurate, reliable, and readily accessible information as to annual income on which to calculate the benefit. In the PAYE and associated methods of collecting income tax from employees the machinery now exists by which these requirements can be met for the majority of persons employed in this country, but unfortunately it does not include some classes of employees to which I will refer later.
If that machinery were not to be made available for the purposes of this pay-related social insurance scheme, then a separate system of collection and of record keeping would have had to be set up by my Department for these purposes but to do so would have been an unnecessary duplication of work in the public service and would have placed an intolerable burden on employers by requiring them to furnish the same information twice. The Revenue Commissioners themselves have only recently reached the position where they could agree to undertake the collecting of pay-related contributions and, at the same time, furnish the information needed to pay benefit, and it has thus only now become possible to introduce the pay-related benefit scheme provided for in this Bill.
The scheme of pay-related benefit in this Bill is designed to provide a new benefit, under the social insurance system, which will supplement the unemployment benefit payable where a person is unemployed and the disability benefit and maternity allowance payable where a person is incapable of work. A person who is entitled to disability benefit may, because his incapacity is due to an accident at work or a specified occupational disease, be in receipt of injury benefit under the occupational injuries scheme in lieu of disability benefit and it is intended that pay-related benefit will be payable to him so long as he has an underlying entitlement to disability benefit.
The existing flat-rate benefits mentioned, including amounts for adult and child dependants, will continue to be payable under the same conditions as at present. The scheme will provide, for persons earning more than £14 a week where the incapacity for work or unemployment lasts for longer than a fortnight, for the flat-rate benefit to be supplemented by pay-related benefit, which will be at the rate of 40 per cent of that part of the claimant's average weekly earnings, in a previous income tax year, which lies between £14 and an upper limit or ceiling, yet to be fixed.
I should explain that the level of 40 per cent of gross pay was chosen after an examination of the real value of various levels of pay-related benefit in terms of replacement of the actual loss of pay during periods of sickness or unemployment. Very few workers take home the full amount of their pay. Stoppages of various kinds are almost invariably made and these include statutory deductions in respect of social insurance contributions and income tax. These statutory deductions, which arise out of payment of remuneration, are not made during weeks of unemployment or sickness and accordingly income replacement by way of benefit during such weeks, should properly relate only to the person's net or take home pay after these deductions have been made.
As I have indicated the main purpose of having benefits related to pay is to enable the recipient to maintain, during periods when he is not at work, a standard of living reasonably comparable to that which he normally enjoys. Children's allowances, where payable, are part of the family income and are paid whether the beneficiary is earning or sick or unemployed, and it is reasonable to add these payments both to the level of take home pay and to the level of benefit in determining the real value of the pay related benefit in maintaining the beneficiary's standard of living. The existing flat-rate benefit provides 40 per cent of gross pay up to £14. The 40 per cent of reckonable earnings in excess of £14 when added to the flat-rate benefit payable, therefore provides, in the case of single persons, replacement of at least 50 per cent of net pay at all pay levels while, in the case of married persons, the level of replacement is higher because of the addition of increases of flat-rate benefit in respect of dependants. The level of replacement of net pay, for example, at average weekly earnings of £30 would be approximately 65 per cent for a married man, 70 per cent for a married man with two children, and 75 per cent for a married man with four children. At earnings of £20 the level of replacement would be higher still, being 70 per cent for a married man, 78 per cent for a married man with two children and almost 90 per cent for a married man with four children. It could happen in the case of persons with large families whose reckonable weekly earnings are low that, when the amount of pay related benefit is added to the flat-rate benefit, the total amount payable would exceed the average weekly earnings on which the benefit was based. As the object of the scheme is to enable a person to maintain his standard of living it would seem illogical if the scheme were to provide for his income, during periods of sickness or unemployment, to be supplemented to a higher level than when he was working. This can be prevented by putting a ceiling or wage stop related to a person's pay on the total amount of benefit that could be paid to him and there is provision to do this by regulations.
As I have mentioned, the basic flat-rate disability and unemployment benefits for a single person, £5.55, represents approximately 40 per cent of £14 and a still higher percentage of normal take home pay in such a case. A single person earning less than £13.88 receives by way of flat-rate disability or unemployment benefit more than 40 per cent of his earnings or more than 50 per cent of his net or take home pay.
A married man in this category receives as flat-rate benefit for himself and his wife at least 75 per cent of his net pay. If he has children he receives a considerably higher proportion by way of replacement income. This varies from at least 95 per cent if he has a wife and two children, to well over 100 per cent if he has more than two children or has been earning significantly less than £14 weekly; and there is no wage stop in the case of flat-rate benefit. There is, therefore, nothing discriminatory about adopting the floor of £14 a week on weekly pay for benefit purposes in this scheme. It derives from the nature of the scheme, being automatic when regard is had to the continued existence of the flat rate benefit.
The ceiling, or upper limit of pay, which will be taken into account for benefit and contribution purposes will be prescribed by regulations. The level of this ceiling cannot yet be decided as the remuneration limit for the compulsory insurance of non-manual workers, which at present stands at £1,600 a year, affects the issue. As I have already announced on more than one occasion, I am anxious to have this remuneration limit abolished and I hope to be in a position to introduce legislation for that purpose shortly.
If this limit were to stand the ceiling or upper limit on reckonable weekly earnings for pay-related benefit purposes could not exceed the weekly equivalent of £1,600 a year, since if non-manual workers over that limit are excluded from compulsory insurance there would be no case for including the earnings of manual workers above that level for pay-related benefit purposes. When the limit is abolished, I will be able to prescribe a ceiling on reckonable weekly earnings for pay-related benefit purposes which will be related to the general level of wages at the time the scheme commences and which can be changed from time to time in line with changes in that level.
The average weekly earnings which will be used for the purpose of calculating the amount of pay-related benefit payable to a person will be based on his actual gross earnings from his employment which are reckonable for income tax purposes. These earnings will include all amounts paid by his employer which are taken into account by the Revenue Commissioners as earnings for income tax purposes. The Revenue Commissioners will supply to my Department the necessary information regarding earnings, to enable pay-related benefit to be calculated and paid. The information to be furnished in this regard will, of course, be restricted to the minimum necessary for our purposes.
I have no doubt that there may be some criticism of the use of earnings in a previous income tax year on the grounds that they relate to a past period and take no account of the rises in pay levels in the meantime. In fact, as it will be some months after the end of an income tax year before records of earnings become available, the gross earnings to be taken into account for benefit purposes may not be those in the most recently completed income tax year. However, power is being taken to prescribe by regulations the manner and the basis of calculation of reckonable weekly earnings for the purposes of pay-related benefit and it is intended that this power will be used to inflate reckonable weekly earnings so as to compensate broadly for the effects of the time lag.
Since the pay-related benefit will only be paid where there is title to flat-rate benefit the existing claim procedure will merely be expanded to ensure that for pay-related benefit purposes whatever information is needed to ascertain the amount of reckonable earnings in the relevant income tax year is obtained. In straightforward cases, and these should be the vast majority, all that the claimant will be required to supply will be his income tax registered serial number but in cases where difficulties arise he may be required to furnish further information. It is the intention that both the flat-rate and pay-related benefits will be paid together in one weekly payment.
The pay-related benefit will be payable for up to 147 days of unemployment during any period of interruption of employment, provided the claimant is in receipt of unemployment benefit. It will also be payable for up to 147 days in respect of incapacity for work during any period of interruption of employment, if the claimant is entitled to disability benefit. The payment in respect of incapacity for work may be made with occupational injury benefit, if the claimant would otherwise be entitled to disability benefit, or with maternity allowance.
The pay-related benefit will, in the ordinary course, begin to be payable after the claimant has been incapacitated or unemployed for two weeks. And here I must emphasise that the new benefit is not intended for the really short-term periods of incapacity or unemployment, that is those of less than a fortnight, as normally these should not seriously affect the claimant's standard of living. It will continue to be paid, for up to 147 days in either case, for as long as the beneficiary continues to be entitled to flat-rate benefit.
In the normal course a person claiming flat-rate unemployment benefit has three waiting days of unemployment before benefit becomes payable and he may then draw benefit for a further 156 days of unemployment before being subject to a new contribution condition for its continued receipt. The pay-related benefit with unemployment benefit for 147 days after a 12-day waiting period which will include the existing three waiting days for the flat-rate benefit, will bring the beneficiary up to the point where he has been paid 156 days flat-rate unemployment benefit. Similarly payment of pay-related benefit with disability benefit will normally cease at the point where the person has been paid 156 days disability benefit.
I should now like to say a few words about the financing and scope of the scheme. It is provided that the cost of the pay-related scheme will be borne by contributions from employers and their employees. The contribution will be pay-related and thus the cost of the scheme will be spread equitably over all pay levels between £14 a week and the ceiling to be fixed for benefit purposes. I am not satisfied that the taxpayer, through the Exchequer, should be required to contribute to a scheme which is not of general application and is, in fact, designed to provide the greatest benefit for higher paid workers and from which lower paid workers are excluded. The pay-related contribution to be levied on employers and employees will be set at a level adequate to cover the total cost of the scheme.
As I have already indicated, it has been arranged to have the pay-related contributions collected by way of the income tax machinery of the Revenue Commissioners and paid into the social insurance fund and the nature of the pay to be taken into account for pay-related contribution purposes will be the same as for benefit. Instead of using the earnings in the preceding tax year however, the contributions will be based on and collected from the person's actual earnings in the income tax year then current. These earnings will, of course, be the earnings which will be the basis of the person's entitlement to pay-related benefit in a subsequent year.
It has not yet been possible to finalise the costings of the scheme. Apart from the question of the ceiling on reckonable earnings yet to be determined, another problem still not fully resolved is that of financing the scheme in the initial stages. It is not possible at this stage, therefore, to determine the rate of contribution. Subject to what I have already said, the cost of the scheme has, however, been estimated to be of the order of £7 million to £8 million a year and the rate of contribution is expected to be about 3 per cent of reckonable earnings, of which 1½ per cent will be payable by the employer and 1½ per cent by the insured person. The contribution rate as finally determined will be prescribed by regulations as will also the ceiling of pay up to which contributions will be levied.
The scheme will apply to all insured persons in respect of whom the ordinary full rates of flat-rate employment contributions are payable under the existing social insurance system. The scheme will thus cover most persons who are in industrial, commercial and services type employments. These are estimated to number about 680,000 persons at present. When the remuneration limit of £1,600 a year for compulsory social insurance is removed, this number will be increased by an estimated further 30,000 persons. As I have already mentioned, it is not possible, at the moment, to bring into the scheme all persons whose insurance at present covers them for disability and unemployment benefit. The main groups thus affected are male agricultural workers, numbering about 38,000, and female agricultural workers and domestic employees who are estimated to number about 15,000. The reason why they cannot be brought in is that it will not be possible within the income tax collection system at present to collect pay-related contributions from them or to provide the information regarding their earnings which would enable pay-related benefit to be calculated. The Bill would provide for power to bring into the scheme by regulations classes of employees other than those in respect of whom the ordinary rates of employment contributions are payable. It is my intention to pursue this matter with a view to extending the scheme to include those classes by regulations. Any decision in this matter, however, would revolve largely on the feasibility of collecting pay-related contributions from the particular class being considered.
The scheme will be brought into operation by an order or orders which will be made by me. I am anxious that the scheme should be brought into operation as soon as possible. The Revenue Commissioners are, however, unable to undertake the collection of the pay-related contributions from a date earlier than the 6th April, 1974 which is the start of an income tax year and also the date on which the collection of pay-related health contributions from various categories of persons including those insured under the Social Welfare Acts will commence. However, while the collection of pay-related social insurance contributions cannot start until 6th April, 1974, I hope to be able to start payment of pay-related benefit some months earlier and to this end I am consulting with the Minister for Finance with a view to determining the earliest date from which this can be done having regard to the usual budgetary considerations. The Bill, therefore, includes provision for advances for this purpose from the Central Fund to the social insurance fund, any such advances being on a repayment basis. The amounts of the advances, the terms of repayment and the effect of such repayment on the level of contributions have yet to be decided.
The proposals in this Bill represent a significant advance in the development of our social insurance system. Not only are they important in regard to the increased benefits they will provide and because they constitute a major advance towards bringing our social security code into line with the social codes of the EEC and other countries, but they will pave the way for further appropriate developments in our social security code in the wider field of long term benefits and pensions. As soon as this new scheme has got off the ground and is operating smoothly, I intend to use the experience gained and the basic machinery established under it to develop complementary schemes of pay-related pensions within the social insurance system. I should sound a warning, however, that even with the best will in the world these proposed developments cannot be brought about overnight and any such changes must in the ultimate be considered in relation to general financial and economic circumstances and developments in other services.
I hope that the explanations I have given here coupled with the information contained in the explanatory memorandum circulated with the Bill will give Senators a fuller understanding of the proposals in the Bill which are, of course, highly technical and specialised. A great deal of the details of the scheme will appear in regulations to be drafted under the provisions of the Bill. Development of the procedures for collection of contributions and also for the payment of the supplementary benefits has already entailed a great deal of work both in the office of the Revenue Commissioners and in my own Department but much still remains to be done.
I have great pleasure in recommending this Bill to Seanad Éireann for early and favourable consideration.