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Social Welfare Code Review

Dáil Éireann Debate, Wednesday - 26 September 2012

Wednesday, 26 September 2012

Ceisteanna (99, 100, 101, 102)

Michael McGrath

Ceist:

99. Deputy Michael McGrath asked the Minister for Social Protection the approximate cost in 2013 of extending jobseeker's benefit to the self-employed; if this estimate is based on a voluntary opt in principle or universal coverage; and if she will make a statement on the matter. [40942/12]

Amharc ar fhreagra

Michael McGrath

Ceist:

100. Deputy Michael McGrath asked the Minister for Social Protection the approximate cost in 2013 of extending illness benefit to the self-employed; if this estimate is based on a voluntary opt in principle or universal coverage; and if she will make a statement on the matter. [40943/12]

Amharc ar fhreagra

Michael McGrath

Ceist:

101. Deputy Michael McGrath asked the Minister for Social Protection the approximate cost in 2013 of extending invalidity pension benefit to the self-employed, is based on a voluntary opt in principle or universal coverage; and if she will make a statement on the matter. [40944/12]

Amharc ar fhreagra

Michael McGrath

Ceist:

102. Deputy Michael McGrath asked the Minister for Social Protection if she has held talks with representatives of the self -employed regarding the prospect of extending to them a range of short term benefits from the Social Insurance Fund; and if she will make a statement on the matter. [40945/12]

Amharc ar fhreagra

Freagraí scríofa

I propose to take Questions Nos. 99 to 102, inclusive, together.

In general the current system of social insurance operates on a mandatory basis only and does not provide for voluntary participation on the part of contributors. Self-employed persons are liable for PRSI at the Class S rate of 4% which entitles them to access long-term benefits such as State pension (contributory) and widow's, widower's or surviving civil partner's pension (contributory). Ordinary employees who have access to the full range of social insurance benefits pay Class A PRSI at the rate of 4%. In addition, their employers make a PRSI contribution of 10.75% in respect of their employees, resulting in the payment of a combined 14.75% rate per employee under full-rate PRSI Class A. (For employees earning less than €356 per week, the rate of employer’s PRSI is 4.25%).

Any changes to the PRSI system to extend the full range of social insurance benefits to self-employed persons would have significant financial implications and would have to be considered in the context of a much more significant rise in the rate of contribution payable.

The third Actuarial Review of the Social Insurance Fund, as at 31 December 2010, was completed by consultants KPMG in June 2012 and laid before each House of the Oireachtas on 24 August 2012.

The Review covers a 55 year period from 2011–2066 and builds on the findings of the 2000 and 2005 Actuarial Reviews of the Fund.

The scope of the 2010 Review was to update the results of the 2005 Review, taking account of the policy, economic and demographic changes with particular reference to income and expenditure projections as well as break-even contribution rates. The Review also considered the effects of the various policy options, existing Government commitments and planned reforms. One of the issues examined in the 2010 Review was the long-term cost implications to the Social Insurance Fund (SIF) and the break-even contributions rates required to provide invalidity pensions to the self-employed and to provide jobseekers benefit for self-employed workers.

KPMG modelled the costs associated with the introduction of these benefits by increasing the incidence by 12% in their models reflecting the increase in potential beneficiaries. This uplift is based on the distribution of PRSI contributors at 31 December 2010. The implicit assumption in this calculation is that the proportion of self-employed accessing these benefits is the same as the existing population with entitlement to access these benefits. For illustrative purposes KPMG costed the extension of these benefits by assuming the extended scheme reaches full “maturity” in terms of the numbers of additional beneficiaries with immediate effect. You will be aware that contributors must satisfy the requirement to have a minimum number of paid contributions before they can qualify for these benefits.

In the absence of statistics pertaining specifically to the self-employed, KPMG assumed the incidence rates to be the same as for the overall labour force. This may or may not be appropriate depending on whether or not the self-employed may be expected to behave atypically. KPMG therefore, indicated sensitivities to the incidence rates chosen setting out the range of costs involved where the self-employed numbers accessing jobseekers benefit and invalidity pension are 20% higher or 20% lower than the base-case scenario.

Assuming the incidence rates are the same as for the overall population, KPMG found that the cost of extending jobseekers benefit to the self-employed in 2013 would be €87m. If the incidence rate is 20% lower than the norm the estimated cost would be €73m in 2013 and if the incidence rate is 20% higher than the norm the cost in 2013 would be €105m. In the case of invalidity pension KPMG’s analysis predicted a 2013 cost of €78m where the incidence rate is the same as for the overall population. Where the incidence rate is 20% lower the cost is estimated at €65m and where the incidence rate is 20% higher than the norm the cost would be €94m.

The accumulated cost over the full period up to 2066 of extending jobseekers benefit and invalidity pension to the self-employed is €2,320m and €4,074m respectively, expressed in current terms.

The 2010 Review also looked at the break-even contribution rates required to provide invalidity pensions and jobseekers benefit for self-employed workers. The report found that the effective annual rate of contribution, or the required contribution as a percentage of salary, needed to provide the core full-rate State pension (contributory), which is the benefit currently available to self-employed contributors, is approximately 15%. This compares favourably with the 4% rate currently paid by the self-employed. An incremental increase in contribution rates from approximately 15% to 16% would be required if jobseekers benefit in addition to core State pension (contributory) is provided. The average contribution rate required for the core State pension (contributory) plus the invalidity pension is estimated to be in the region of 17%.

The scope of the review did not extend to costing the provision of illness benefit for self-employed workers or to the provision of these benefits on an opt out or voluntary basis.

I established an Advisory Group on Tax and Social Welfare last year and one of the issues that the Group is currently considering is the issue of providing social insurance cover for self-employed persons in order to establish whether or not such cover is technically feasible and financially sustainable.

The Advisory Group’s overall method of working is based on producing modular reports on the priority areas identified in the Terms of Reference. Where possible, the aim is to provide recommendations that can be acted upon in time for the annual budget, estimates and legislative cycle and to allow the Government to best address its commitments under the EU-IMF Programme of Financial Support. The Group has been considering the issue of social insurance coverage for the self-employed and will submit its report once its examination of the various questions has been completed. In the course of its work, the Advisory Group has taken submissions from several business interest lobby groups including the Irish Small and Medium Enterprises Association, the Small Firms Association and the Irish Hotels Federation.

Any proposals to extend additional cover to the self-employed will have to be considered in a budgetary context, taking account of the finding of the Actuarial Review that the self-employed achieve very good value for money compared with the employed – when the comparison includes both employer and employee contributions in respect of the employed person.

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