The social welfare system comprises contribution based payments and services paid for from the social insurance fund, means-tested payments and services financed by the Exchequer and universal schemes such as child benefit which are not means-tested but which are also financed by the Exchequer. As the Chairman noted on a previous occasion, a full assessment of social welfare expenditure requires reference to the accounts for the social insurance fund as well as the Appropriations Account. As this is the first time that the social insurance fund account has been specifically discussed by the committee, my opening remarks are focused mainly on this aspect of social welfare expenditure.
The social insurance fund has been in place since the setting up of the unified social insurance system in 1952 and is financed in the main by contributions made by employers, employees and the self-employed. Up to 1996 there were shortfalls every year between contribution income and benefit expenditure which had to be made up by an Exchequer grant to the fund. Since 1997, however, contribution income has exceeded benefit expenditure each year. The surplus of income over expenditure for 2004 amounted to €377 million. Total net assets in the fund at the end of 2004 amounted to approximately €1.9 billion. By the end of 2005 this had risen to some €2.4 billion and it is estimated that the surplus will be close to €2.8 billion by the end of this year. The investment account of the fund is the responsibility of the Minister for Finance who has delegated his functions in this regard to the National Treasury Management Agency operating under guidelines from him.
The fund is responsible for meeting expenditure on social insurance benefits, pensions and associated services, including administrative costs. Since 1990 it has also been responsible for meeting expenditure under the redundancy payments and employers' insolvency Acts administered by the Department of Enterprise, Trade and Employment.
PRSI contributions are made up of contributions in respect of social insurance payments, a separate health contribution and, since 2000, a national training fund levy. The income from these latter payments is paid over by the Department to the Department of Health and Children and the Department of Enterprise, Trade and Employment, respectively, on an annual basis. There are 11 classes of PRSI contribution depending on the nature of employment or self-employment and the amount of reckonable earnings. The class of contribution determines the range of social insurance benefits towards which entitlement is built up. The principal class, class A, covers the full range of insurance benefits. In any case where there is a doubt as to the appropriate contribution class to be applied, the Department's scope section will make an appropriate determination having regard to circumstances.
The coverage of the social insurance system has widened progressively during the years in terms of the numbers covered and the range of benefits provided. The role of the fund will grow in importance as more people establish entitlement to social insurance payments. The 1998 Social Welfare Act provided for periodic actuarial reviews to be carried out of the financial condition of the fund for the purposes of determining the extent to which the fund may be expected to meet the demands placed on it in the longer term and the adequacy or otherwise of the contributions to support them. Such a report, which was made with reference to the position at the end of 2000 and covered the period to 2056, was published in 2002. Arrangements are being made for a further review to reflect the position at the end of 2005.
For employees generally, PRSI contributions are collected by the Revenue Commissioners along with PAYE income tax. Enforcement of employer obligations in that regard is a matter for the Revenue, but the Department's inspectorate also monitors compliance through inspecting employers' records. Those inspections are designed to ensure that appropriate records are maintained and contributions correctly paid and remitted, and to detect any fraud or abuse of the social welfare system. Employer inspections are carried out by the Department's general inspectorate and by the special investigative unit, which is engaged full-time in the investigation of fraud.
All aspects of the Department's relationship with the Revenue regarding PRSI determination and collection are covered by a service-level agreement between the two organisations. That agreement is currently being reviewed.
In 2004, the year we are examining, total income to the fund amounted to approximately €6.745 billion, while expenditure was €6.368 billion, leaving a surplus of €377 million. Some €800 million was paid to the Department of Health and Children in health contributions, and €273 million to the Department of Enterprise, Trade and Employment as the National Training Fund levy. Expenditure on social insurance and related payments alone amounted to €5.3 billion. Of that expenditure, €3 billion went towards old-age schemes for the elderly and survivors, more than €1 billion on schemes for incapacitated people, and approximately €500 million on the unemployed.
Achieving more efficient delivery of social insurance and other payments is a priority for the Department. Greater use of new technology is a key to progress in that context, and arrangements to extend the service delivery modernisation programme to retirement and old-age pensions commenced in 2004. The service delivery model is now live and operational for contributory and retirement pensions. The programme will incorporate all the main scheme areas when complete. A range of other process improvements was also introduced during 2004, enabling the Department to deliver better service to customers in an environment where their numbers were increasing while staff numbers were falling.
On the fraud and control front, the Department began to introduce a revised approach to control activity in the light of an evaluation completed by the Comptroller and Auditor General at the end of 2003. That approach included an ongoing programme of fraud and error surveys to establish baseline fraud and error levels for schemes. Surveys have now been completed for child benefit, family income supplement and disability allowance and the results compiled. The survey on supplementary welfare allowance was also completed fairly recently, and the data are currently being collated.
As discussed at a previous meeting with the committee, a survey on the PPS number allocation process commenced in February 2006, and it is hoped to complete it by the end of May. A survey on disability benefit is scheduled to begin in September 2006. Those surveys will enable us to assess the level of fraud and error occurring in the schemes, and the outcomes can be analysed to highlight high-risk claims. Customers will be the focus of more frequent and targeted review. A range of other control initiatives has also been implemented by the investigation staff based in the Department's regions as part of a more targeted and focused control approach overall.
The Department was responsible for overall expenditure amounting to some €11.3 billion in 2004, some €6 billion of which was funded by the Exchequer and €5.3 billion by the social insurance fund. Approximately 1 million people received weekly social welfare payments that year. The Department is conscious of its responsibility to ensure the effectiveness and efficiency with which that expenditure is delivered, and I welcome any comments the committee may have in that regard.