Dáil Éireann Debate, Wednesday - 14 February 2018
289. Deputy Róisín Shortall asked the Minister for Employment Affairs and Social Protection the estimated cost to the Exchequer and the Social Insurance Fund in a full year if all PRSI benefits available to employed persons on class A PRSI were extended to the self-employed without a change of the rates currently charged. [7616/18]
Amharc ar fhreagraSelf-employed workers who earn €5,000 or more in a contribution year, are liable for PRSI at the Class S rate of 4%, subject to a minimum annual payment of €500. This provides them with access to the following benefits: State pension (contributory) and widow’s, widower’s or surviving civil partner’s pension (contributory), guardian’s payment (contributory), maternity benefit, adoptive benefit, paternity benefit and treatment benefit (from March 2017). Entitlement to invalidity pension was extended to the self-employed from 1st December 2017.
This compares favourably with employees who, in general, are liable to the Class A rate of 4%. In addition their employers are liable to PRSI at the rate of 8.6% on weekly earnings up to and including €376 or at the rate of 10.85% where weekly earnings exceed €376. Accordingly the combined rate of PRSI rate paid in respect of Class A employees is 12.6% or 14.85%, depending on the level of weekly earnings. These Class A employees are entitled to the full range of social insurance benefits.
The issue of extending additional social insurance benefits to the self-employed paying Class S PRSI was considered in the Actuarial Review of the Social Insurance fund (SIF) as at 31 December, 2015, which I published on 18 October 2017. The Review, required by legislation, was carried out by independent consultants, KPMG. It examines the projected income and expenditure of the SIF over the course of the 55 year period from 2016 to 2071.
The Review found that the fund currently has a modest surplus of income over expenditure. In 2016 there was a surplus of €0.4 billion on expenditure of €8.8 billion and receipts of €9.2 billion. However, this will reduce and will return to a small shortfall in 2020. The annual shortfalls are projected to increase from 2021 onwards as the ageing of the population impacts. Projections indicate that, in the absence of further action to tackle the shortfall, the excess of expenditure over income of the fund will increase significantly over the medium to long term. The shortfall in expenditure over income is projected to increase from €0.2 billion in 2020 to €3.3 billion by 2030 and to €22.2 billion by 2071. It should be noted that as self-employed workers became eligible to apply for invalidity pension from December 2017, the cost of this introduction has been factored into the Actuarial Review.
As part of the Review the independent consultants were required to project the additional PRSI expenditure if invalidity pension and illness, jobseeker’s and carer’s benefits were extended to Class S self-employed workers and the PRSI contribution rates required to provide these benefits on a revenue neutral basis.
The Review found that the combined cost of introducing the invalidity, illness, jobseeker’s and carer’s benefits for class S contributions is estimated to be €118 million in 2018, rising steadily to €223 million in 2020. By 2025 the projected cost is €413 million and, over the period of the review the cost would rise to €1.3 billion in 2071.
It should be noted that the projected expenditure on jobseeker’s benefit assumes the same incidence rate as prevails in the employed (PRSI Class A) population. The following table gives a breakdown of the costs of the individual benefits:
Projected costs of extending Invalidity Pension, Illness Benefit, Jobseeker's Benefit, Carer’s Benefit (€m)
|
Year |
Invalidity |
Illness |
Jobseeker’s |
Carer’s |
Total |
|
2017 |
3 |
0 |
0 |
0 |
3 |
|
2018 |
30 |
40 |
45 |
2 |
118 |
|
2019 |
59 |
54 |
58 |
3 |
173 |
|
2020 |
87 |
72 |
60 |
4 |
223 |
|
2021 |
125 |
88 |
63 |
5 |
281 |
|
2022 |
152 |
94 |
67 |
5 |
317 |
|
2023 |
176 |
99 |
71 |
5 |
351 |
|
2024 |
198 |
104 |
75 |
6 |
382 |
|
2025 |
218 |
108 |
81 |
6 |
413 |
The Review indicates that, where these benefits are extended to the self-employed, the Class S rate of PRSI contribution would need to increase substantially in order to ensure that the benefits are delivered in a revenue neutral manner. It estimates that when expenditure on the additional benefits is considered over the entire projection period, PRSI rates would need to increase by 94% under a scenario of no subvention from the exchequer. This is equivalent to an increase of the Class S contribution rate from the current 4% rate to 7.8%.
This increased contribution is attributable to the costs of extending these additional benefits to PRSI Class S contributors. It does not take account of the value to PRSI Class S contributors of access to the range of existing benefits, and in particular State pension (contributory).
The consultants estimated that the typical cost of State pension (contributory) on its own is of the order of 10% to 15%, depending on other factors including rate of average earnings and date of commencing paying PRSI. Adding in the other benefits referenced the total Class S rate of contribution to ensure revenue neutrality would be of the order of 20% per annum.
The findings of the Review will play an important role in informing the overall debate on policy developments in relation to the Social Insurance Fund in the years ahead including the financial sustainability of the Fund given the expected demographic challenges and consideration of extending the scope of benefits for workers generally, including the self-employed.
