Ms Mary Kennedy:

Social insurance PRSI contributions broadly fall into two categories - employers and employees, over 16 years of age, pay PRSI towards establishing entitlement of employees to a broad range of both short-term and long-term social insurance benefits. A lower rate of PRSI is paid by the self-employed into the social insurance fund, which provides them with access to long-term social insurance benefits.

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. Maternity benefit is also available to self-employed contributors. Ordinary employees who have access to short-term and long-term 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%.

Self-employed workers may establish eligibility to assistance-based payments such as jobseeker's allowance. They can apply for the means-tested jobseeker's allowance if their business ceases or if they are on low income as a result of a downturn in demand for their services. In general, their means will take account of the level of earnings in the last twelve months in determining their expected income for the following year and, in the current climate, account is taken of the downward trend in the economy. As in the case of a non-self-employed unemployed claimant of jobseeker's allowance, the means of husband-wife, civil partner or cohabitant will be taken into account in deciding on entitlement to a payment.

I made a presentation to the committee on 20 September on the findings of the actuarial review of the Social Insurance Fund, as at 31 December 2010. This is the third actuarial review of the fund and was completed by consultants KPMG in June 2012. It was presented to the Government on 24 July 2012 and published on 17 September 2012. The review covers a 55-year period between 2011 and 2066 and builds on the findings of the 2000 and 2005 actuarial reviews. 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 various policy options, existing Government commitments and planned reforms. The review examined a range of value for money measures to examine the extent to which individuals currently receive value for money from the fund.

With regard to the self-employed, the report states that "the self-employed achieve better value for money compared to the employed - when the comparison includes both employer and employee contributions in respect of the employed person". On possible future entitlements for the self-employed, the review examined the break-even contributions rates required, and the potential long-term cost implications to the fund, of providing invalidity pensions to the self-employed and to provide jobseeker's benefit for self-employed workers.

The 2010 review also looked at the break-even contribution rates required to provide invalidity pensions and jobseeker's 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) 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 jobseeker's benefit in addition to the core contributory State pension is provided. The average contribution rate required for the core pension in addition to the invalidity pension and jobseeker's benefit is estimated to be 17.3%.

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. One would not know; there are contribution requirements in these schemes but that was how the consultants did the calculations. 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 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 jobseeker's 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 jobseeker's benefit to the self-employed in 2013 would be €87 million. If the incidence rate is 20% lower than the norm, the estimated cost would be €73 million in 2013 and if the incidence rate is 20% higher than the norm, the cost in 2013 would be €105 million. In the case of invalidity pension KPMG's analysis predicted a 2013 cost of €78 million where the incidence rate is the same as for the overall population. Where the incidence rate is 20% lower, the cost is estimated at €65 million and where the incidence rate is 20% higher than the norm, the cost would be €94 million. While, as stated by the consultants, the long-term projections, by their very nature, are unlikely to be borne out in practice, the report emphasises the trends which emerge over the period.

Last year the Minister for Social Protection established an advisory group on tax and social welfare. Under its terms of reference, the group examines and makes recommendations on a number of key issues, including child and family income supports, working age income supports, the appropriate unit of assessment and interactions in both the tax and social welfare codes, issues concerning social insurance for self-employed people and budget 2012 proposals concerning disability allowance and domiciliary care. 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. I thank the Chairman and the committee for inviting us to appear.