Dáil Éireann Debate, Tuesday - 1 May 2018
440. Deputy Willie O'Dea asked the Minister for Employment Affairs and Social Protection the position regarding the development of a consultation paper on a rate setting or funding approach for the Social Insurance Fund; and if she will make a statement on the matter. [19121/18]
Amharc ar fhreagraThe Deputy is referring to a commitment in the Roadmap for Pensions Reform 2018-2023 which was published on 28 February 2018 that a consultation paper be published on an appropriate rate-setting/funding approach for the Social Insurance Fund by the end of Quarter 4 2018.
The consultation paper will be informed by the Roadmap and in particular by the findings of the Actuarial Review of the Social Insurance fund (SIF) as at 31 December 2015, published in October 2017, which was carried out by independent consultants, KPMG. This is a review required by legislation. 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 over the next two years 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.
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.
These costs assume that the cost of extending invalidity pension to the self-employed builds up steeply for the first 10 years after introduction after which time the scheme is almost at maturity or a steady state.
For the shorter term schemes, illness and jobseeker's benefits, it is estimated that they will reach maturity after 2 years. Projected expenditure on jobseeker's benefit assumes the same incidence rate as prevail in the employed (PRSI Class A) population.
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 play an important role in informing the overall debate on policy developments in relation to the SIF 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. The Actuarial Review provides government with a timely and evidence-led opportunity to undertake a full review of our social insurance system and to consult with stakeholders.
Work has commenced on preparation of the consultation paper in my Department with a view to adhering to the timetable set out in the Pensions Roadmap.
I hope this clarifies the matter for the Deputy.
