Ms Mary Kennedy:

I thank the committee for the invitation to appear before it to discuss the social insurance entitlements of the self-employed. Members will have received copies of my presentation. My name is Mary Kennedy. I am principal officer with responsibility for PRSI policy in the Department of Social Protection. I am accompanied by Ms Aideen Mooney, assistant principal for PRSI policy.

Social insurance contributions broadly fall into two categories. Employers and employees over 16 years pay PRSI towards establishing entitlement of employees to a broad range of short 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 contributory State pension and contributory widow's, widower's or surviving civil partner's pension. 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% on their behalf, 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 reverts to 8.5% from 1 January 2014. The lower rate of employer PRSI was halved from 8.5% to 4.25% for the period July 2011 to 31 December 2013 as part of the jobs initiative announced in May 2011.

Class S contributions do not count towards the social insurance contributions required for eligibility under a number of schemes, including jobseeker’s benefit. This has led to a perception that the self-employed are not eligible for any social welfare support while unemployed. However, 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 a low income as a result of a downturn in demand for their services. In general, the means assessment will take account of the level of earnings in the past 12 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 claimant of jobseeker’s allowance who is not self-employed, the means of a husband, wife, civil partner or cohabitant will be taken into account in deciding on entitlement to a payment.

The question as to whether the present arrangements regarding social insurance for the self-employed are appropriate has increased in prominence over recent years. The Department undertook two specific pieces of work in relation to the entitlement of self-employed persons. To explore the possibility of extending social insurance cover for the self-employed, the Department, as part of the Actuarial Review of the Social Insurance Fund 2010, asked the consultants engaged to carry out the review to project the long-term cost implications to the Social Insurance Fund and the break-even contribution rates required to provide invalidity pensions for self-employed workers and to provide jobseeker’s benefit payments for self-employed workers.

In addition, the advisory group on tax and social welfare, which was established in June 2011 with the aim of harnessing expert opinion and experience, was asked to examine a number of specific issues. Specifically, in its terms of reference, the group was asked to examine and report on issues involved in providing social insurance cover for self-employed people in order to establish whether such cover is technically feasible and financially sustainable. In this context, the group was required to consider any proposals for change to existing arrangements in a cost-neutral or cost-reducing context.

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 to 2066 and builds on the findings of the 2000 and 2005 actuarial reviews of the fund. One of the issues examined in the 2010 review was the long-term cost implications to the Social Insurance Fund and the break-even contribution rates required to provide invalidity pensions to the self-employed and to provide 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 contributory State pension, 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 jobseeker’s benefit in addition to core contributory State pension were provided. The average contribution rate required for the core contributory State pension plus jobseeker’s benefit and the invalidity pension is estimated to be in the region of 17.3%.
As stated, on 6 September 2013, the Minister published the third report of the . Its findings include that 85% of 20,000 self-employed people who claimed the means-tested jobseeker’s allowance during the three-year period from 2009 to 2011 received payment. This is in contrast to the perception that the self-employed do not receive social welfare support while unemployed. The group, therefore, found that the current system of means-tested jobseeker’s allowance payments adequately provides cover to self-employed people for the risks associated with unemployment.
Another finding was that extending social insurance for the self-employed is warranted in cases related to long-term sickness or injuries. To this end, it recommended that class S benefits should be extended to provide cover for people who are permanently incapable of work because of a long-term illness or incapacity through the invalidity pension and the partial capacity benefit schemes. The group also recommended that the extension of long-term sickness benefits should be on a compulsory basis and that the rate of contribution for class S should be increased by at least 1.5 percentage points.

In the course of the group’s deliberations, it identified a range of issues associated with the subject of social insurance for the self-employed that should be addressed and have made a number of recommendations in this regard. These include the means assessment for self-employed income in terms of accessing jobseeker’s allowance payments, credited PRSI contributions, self-employed access to activation and training schemes and the role that information campaigns might play in addressing information deficits, particularly with regard to entitlements to jobseeker’s allowance.

The recommendation concerning long-term sickness or injuries is an important contribution to the policy debate regarding the range of benefits the self-employed might access through their social insurance contributions. In this regard, the 2010 actuarial review of the Social Insurance Fund, published last year, determined that the self-employed are obtaining better value for the level of their current social insurance contributions than employees. The actuarial review found that the effective annual rate of contributions needed to provide the core full-rate contributory State pension, currently available to self-employed contributors, is approximately 15%. This compares favourably with the 4% rate currently paid by the self-employed. This finding was noted by the advisory group in its recommendations. Consequently, the recommendations of the advisory group require further consideration in conjunction with the findings of the 2010 actuarial review relating to the level of contributions levied on class S contributors and the current shortfall in this regard. The Minister has indicated that she and the Government will reflect carefully on the findings of the advisory group and will further consider the recommendations contained in the report taking into account future developments in terms of the budgetary and fiscal situation.