Michael Ring
Ceist:642 Mr. Ring asked the Minister for Social, Community and Family Affairs the reason actual value of a house and not the rental income is taken into account when a house is taken as means for social welfare purposes. [17497/99]
Written Answers. - Social Welfare Code.
Social welfare payments can be broadly divided into two main areas – social insurance and social assistance schemes. Entitlement to social insurance payments is determined by reference to the level of PRSI contributions paid and is not affected by the claimant's means. However, where a person has not paid PRSI contributions or has insufficient PRSI contributions to qualify for a social insurance payment, he-she may apply for a means tested social assistance payment.
The purpose of the means test is to ensure that the limited resources available are directed at those most in need. Therefore, in assessing means, account is taken of any cash income the person may have, for example, earnings from employment or self-employment, together with the value of any capital or property owned.
However, it is important to note that, unlike the situation which applies in some other countries, the means test does not take any account of the person's home. In addition, for old age pension purposes, where a pensioner sells his or her principal residence and buys or rents more suitable accommodation or moves into a private nursing home, the balance of the proceeds after buying new accommodation will be exempted up to a limit of £75,000. Therefore, it is only where a person has other property, apart from the family home, that the value of that additional property is assessed.
As there are substantial numbers of people in receipt of weekly social assistance payments, it would not be practical to assess means from capital or property on the basis of actual returns from these investments. This would necessitate frequent reviews of the entitlements of a very significant number of recipients whenever interest rates fluctuated or whenever rents were increased. For this reason a notional value is ascribed to the capital or property owned.
Under the current arrangements for assessing capital and property the first £2,000 is disregarded, the next £20,000 is assessed at 7.5 per cent and the balance is assessed at 15 per cent. These arrangements, which were provided for by my predecessor, have applied to non-contributory pensions since October 1997.
While the formula for the notional assessment of capital and property includes rates of 7.5 per cent and 15 per cent, the actual effective assessment rates are much lower. For example, a single pensioner can have capital of up to £6,160 and a couple can have capital of up to £12,320 and still qualify for the maximum rate of old age non-contributory pension. In addition, a couple with capital of £20,000 would only be assessed with means of £600, giving an effective assessment rate of just 3 per cent. As a little over 4 per cent of pensioners have capital in excess of £20,000, this means that the effective assessment rates for the vast majority of pensioners are very much lower than the 7.5 per cent and 15 per cent rates which are used in the notional assessment formula.
In addition to the objectives set out above, the current formula used in determining the value of capital or property is also designed to disregard a certain amount of capital from the assessment in
recognition of sudden and unforeseen needs which may arise; attribute a value to the potential investment income which the capital or property is capable of generating; and recognise that, in addition to the value of the income which the capital or property is capable of generating, there is a further benefit to the claimant through the possession of that capital or property.
Accordingly, the current system is designed to ensure that those with modest amounts of capital receive the greater share of available support, while the small proportion of people with large amounts of capital or property should avail of it to contribute, at least partially, towards meeting their needs.
The effect of current investment returns on social assistance payments has already been brought to my attention by a number of Deputies. In this regard, my Department is examining the arrangements for assessing the value of capital and property owned. I should point out, however, that any relaxation of the current rules would have financial implications and could only be considered in the context of the budget.