Joanna Tuffy (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

At the request of the recording and broadcasting services I ask members to ensure their mobile telephones are turned off completely. Due to an extensive private session at our meeting yesterday I intend to go straight into public session this morning. We can deal with housekeeping matters at the end of the meeting if necessary. Is that agreed? Agreed.

The first matter on our agenda is the actuarial review of the Social Insurance Fund, SIF. Members will be aware of the actuarial review of the fund which was published last June by KPMG on behalf of the Minister for Social Protection. The Minister contacted me recently to suggest that her officials might meet with this committee to discuss the review and I welcome this opportunity for them to do so. I thank the representatives of the Department for attending this meeting. I welcome Ms Mary Kennedy, principal officer for PRSI policy in the Department; Patricia Murphy, principal officer for pensions policy; Paul Morrin, principal officer, statistician; and Aideen Mooney, assistant principal officer. I also welcome Joanne Roche from KPMG.

I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence in respect of a particular matter and they continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are also directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person or entity by name or in such a way as to make him, her or it identifiable.

Ms Mary Kennedy:

I thank the Chairman and members for inviting us to appear before the Joint Committee on Education and Social Protection to present the findings of the actuarial review of the SIF as of 31 December 2010. Members will have received copies of my speaking notes and copies of the report itself have also been provided to the committee. I am the principal officer for PRSI policy in the Department of Social Protection. I am accompanied by Patricia Murphy, principal officer for pensions policy, Paul Morrin, principal officer and statistician, Aideen Mooney, assistant principal for PRSI policy, as well as Joanne Roche from KPMG.

Section 10 of the Social Welfare Consolidation Act 2005 requires the Minister for Social Protection to carry out actuarial reviews of the financial condition of the SIF. The purpose of these reviews is to determine the extent to which the fund may be expected, in the longer term, to meet the demands in respect of payment of benefits and other payments, having regard in particular to the adequacy or otherwise of the contributions. The review also examines other matters the Minister considers relevant in terms of affecting the current and future financial condition of the fund. The Minister is obliged to ensure that actuarial reviews are carried out at five-year intervals. On completion of the review a report is to be provided to the Minister and laid before each House of the Oireachtas within six months.

Following a tendering process, the third actuarial review of the SIF, as of 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. The scope of the 2010 review was to update the results of the 2005 review taking account of 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 SIF is the core of the social insurance system. Social insurance, or PRSI, contributions from employers and employees are paid into the fund to finance a broad range of short- and long-term social insurance benefits for employees. A lower rate of PRSI is paid by the self-employed into the fund, which provides them with access to long-term social insurance benefits. The long-term schemes cater for retirement, survivor and maternity benefits, while the principal contingencies covered by the short-term schemes are illness, incapacity, unemployment and maternity.

The fund operates on a pay-as-you-go basis, with the Exchequer acting as the residual financier where there is a shortfall between PRSI contributions received and the cost of social insurance benefits paid. Exchequer subvention was the norm for over 40 years up to 1997. For example, in 1985 the Exchequer contribution was almost 29% of SIF expenditure. However, no Exchequer contribution was required over the period 1997 to 2009, inclusive. In 2008, the current operating balance of the SIF moved into deficit when expenditure exceeded income by €255 million. In 2010, the need for Exchequer subvention arose for the first time since 1996 as the surplus carried forward from previous years was eliminated. The Revised Estimates for the Department provide for a deficit of nearly €1.82 billion in 2012.

The report of the 2010 actuarial review projects the financial sustainability of the fund based on a set of agreed assumptions and a series of projections of the fund's income and expenditure for the period 2011-66. While the effective date for the review is 31 December 2010, the review took account of budgetary and legislative changes affecting benefit and contribution levels, particularly the range of changes provided for in the national pensions framework.

While, as stated by the consultants, 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. In terms of sensitivity, the results presented, when expressed as a percentage of GNP, are not particularly sensitive to alterations in macro-economic variables. The projections presented are, however, particularly sensitive to the approach used to index benefit payments by reference to either national average earnings or the consumer price index and the future population profile, which is affected by increasing life expectancy, fertility rates and migration flows.

I will now cover the findings of projected shortfalls in the review. In the absence of any action to tackle the shortfall, the excess of expenditure over income of the fund will increase significantly over the medium to long term. The provisional 2011 deficit of €1.5 billion will double to €3 billion by 2019 and will have increased to €25.7 billion by 2066. These figures refer to the projected annual deficit in the particular year in question. The figure quoted recently in the media of €324 billion refers to the sum of all annual deficits up to 2066, expressed in current terms, assuming no action is taken. Expressed as a percentage of GNP, the shortfall is projected to increase from 1.1% of GNP in 2011 to 2% in 2019. It will further increase to 6.4% of GNP in 2052 before gradually reducing to 5.7% by 2066.

In the absence of reductions in expenditure levels or increases in PRSI income beyond those planned changes to May 2012, which have been factored into the projections, significant Exchequer subvention will be required to meet ongoing expenditure requirements. Exchequer subventions will need to more than treble from 2011 levels by 2030 and increase by a factor of almost eight by 2040.

There are various drivers of changed fund outlook. The main driver of the increase in overall projected expenditure is pension related expenditure. This is attributable, to a large extent, to the projected aging of the population over the 55-year period. Another factor contributing to the projected expenditure increase is increased labour force participation with consequential increased numbers qualifying for a contributory State pension and at higher rates. This is mitigated to some extent by the 2012 changes to the qualification conditions and payment rate bands and by further changes to be incorporated under the national pensions framework outlined in the appendix.

In recent years there has been a significant increase in expenditure associated with short-term schemes. This is influenced significantly by the poor economic environment which has severely affected PRSI contribution income. In the longer term when the economy is projected to return to a more stable and typical scenario, it is anticipated that these financial pressures will dissipate owing to reduced numbers accessing these short-term schemes in the future.

In the medium to long term, pension-related expenditure is projected to become the predominant component of fund expenditure. Long-term pension-related expenditure will increase from 57% of total expenditure in 2011 to 85% in 2066. The significant increase in pension-related expenditure is attributable to Ireland's rapidly altering population structure and in particular the large increase in the over 65 year old population. The over 65 years cohort is projected to increase from 11% of the total population in 2010 to 15% in 2020 and further to 24% in 2060.

Simultaneously the pensioner support ratio is projected to decline from 5.3 workers for every individual over 65 in 2010 to 3.9 workers by 2020 and to 2.1 workers by 2060. The pensioner support ratio relates to the number of people of working age from 20 to 64 relative to those over the pension age of 65.

I will address the value for money indicators. The value-for-money findings on a range of individual scenarios are consistent with those of the 2005 actuarial review. The principal categories for which social insurance offers better value for money are: those on the lower part of the income distribution; those with shorter contribution histories; and the self-employed. For those at the higher end of the income distribution, the fund is redistributive and these individuals generally get back less than they pay in.

I thank the members of the committee for inviting us here today. My colleagues and I would be very happy to answer any questions they may have.

Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I thank Ms Kennedy for the detailed report. I have not dealt with these reports as they have been made every five years in the past. Ms Kennedy said that significant Exchequer intervention would be required in the future unless certain things happened. One of them is obviously a reduction in expenditure and the other is an increase in PRSI contributions. Given the condition of the country at the moment an increase in PRSI funding is quite difficult because people are not working and businesses are struggling. One of the key ways to address some of the problems with the fund is to return to the near full employment of the Celtic tiger years. Am I correct in saying that even if that happened there would still be a shortfall in the future and there is a need for substantial changes to the contribution from businesses in the long term? The sustainability of the fund needs to be addressed with more extensive action, part of which Ms Kennedy has addressed here. For instance, last year the Government reduced some of the employers' PRSI contributions which seems to be contrary to a need to ensure the fund was getting at least as much as it is as present.

Do we need comprehensive tax reform in order to increase the Exchequer take from income tax and PRSI? What is the suggestion on employers? When compared with other European countries, Ireland's PRSI rate seems quite low. We have the standard rate of 10.7% and the lower rate of 4.25%, whereas in Austria it is 21%, Belgium's is more than 30% and it is also higher in Finland. Is Ms Kennedy suggesting that we need to go to that level? Unless the cost of living reduced substantially I do not believe anyone could suggest reducing the amount people get in return - the expenditure element - unless there is any other aspect to expenditure that could be addressed.

Ms Mary Kennedy:

The purpose of the report is to supply all the information necessary to make decisions. Obviously it is not appropriate for any of us to comment on any of that. However, the report deals with the rates required to address various expenditure situations and that may be the best way to respond to the Deputy's question. I ask Ms Roche to go through the detail.

Ms Joanne Roche:

The main pressures on the fund are age-related as opposed to unemployment and the number of jobseekers at present. Those age-related pressures are a function of the aging of the population and hence the pension pressures. We do not make any recommendations on dealing with the increasing deficit other than pointing out three options: increasing PRSI; increasing subventions from the Exchequer from general taxation; and reducing the benefits or indexation associated with those benefits. However, we do not go so far as to make any recommendations.

The sensitivity of the fund to unemployment is set out in table 8.9 of the report. As members will see from the table, it is not overly sensitive to unemployment in the long term. I hope that is sufficient to answer the Deputy's question.

Joanna Tuffy (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

On which page is the table?

Ms Joanne Roche:

It is on page 69 of the report. The main expenditure of the fund is pension related as set out in the detailed projections in appendix 6 at the back of the report.

Joan Collins (Dublin South Central, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

I did not read the entire report in detail, but the main point is that it is age-related and how to tackle the subvention in that regard.

A rumour was going around about linking pensions to inflation, which would reduce them further, but we know pensions are already one third of the average industrial wage and quite low for people trying to survive on them. It is a very difficult question to deal with and the only way to do it is a subvention increase over a period of time. I will return to a point touched on by Deputy Ó Snodaigh. If we reach full employment by how much would the amount going into the fund be increased? I believe the figure is €8 billion at the present level of unemployment.

Ms Joanne Roche:

Yes; based on total receipts in 2011, the outturn figure was €7.5 billion. We have not run the figures required to answer Deputy Collins's question but the figures I mentioned are on the back of approximately 14% unemployment. The long-term unemployment rate is 6% so one could make an adjustment for this.

Mr. Paul Morrin:

Many of the pressures of long-term unemployment are not on the social insurance fund but on social assistance payments such as jobseeker's payments. On the expenditure side it would not necessarily fall into the scope of this review. There is certainly a projection for the extra income from more employment, which, as Ms Roach mentioned, is in table 8.9.

Joan Collins (Dublin South Central, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source

We cannot stop people from getting old so it is an urgent issue to address. There must be subvention into the fund and then we can see how the economy develops with regard to increasing employment, which does not look likely. The impression I have is that subventions will still be quite low until 2019 and will then increase.

Marie Moloney (Labour)
Link to this: Individually | In context | Oireachtas source

I have not had time to read the report because I received it by e-mail yesterday morning and it contains 177 pages. I would like to take the time to study it in detail. I will speak from a more practical point of view. Some people were against the changes made to pensions this year and voiced their opposition to them, but I thought it was good because I found that someone who worked for ten years and made PRSI and tax contributions but did not work for the following 40 years and drew unemployment payments and got a credit stamp was entitled to exactly the same pension as somebody who worked for 47 years and contributed regularly. I agree with the changes made and I believe that if people who do not pay as much do not get as much back it will ease the burden a little.

I have dealt with many self-employed people who find themselves in dire circumstances. They tell me they would have no problem paying an A rate of PRSI so they could avail of the benefits if they needed them. Has bringing the self-employed into the contributions net at the same rate as PAYE workers been considered? This would mean the benefits would be available to them also when the time came. From what was stated, it seems a subvention from the Exchequer was the norm for 40 years and it was only during the bubble that the subvention was not needed. Obviously we need to revert to the subvention. We cannot apologise for this because it always was the norm.

Ms Mary Kennedy:

One of the items the report examined was extending other benefits to the self-employed, and the report gives costings and the level of contribution that would be required if one were to provide jobseeker's benefit or invalidity pension to self-employed people. This is as far as I can go. I cannot refer to what might happen in the future. The report is to give us information to enable the Department-----

Marie Moloney (Labour)
Link to this: Individually | In context | Oireachtas source

Will Ms Kennedy give an estimate of how much it would bring in?

Ms Mary Kennedy:

The report gives a figure, with regard to the normal pension, of what should be the correct level for everybody to pay to fully fund it. If memory serves me right it is approximately 15%. The contribution figure that would be required to provide jobseeker's benefit for the self-employed would be 16%. To provide the pension, jobseeker's benefit and the invalidity pension would require a 17% contribution.

Marie Moloney (Labour)
Link to this: Individually | In context | Oireachtas source

The S contribution already supplies-----

Ms Mary Kennedy:

It is 4%.

Marie Moloney (Labour)
Link to this: Individually | In context | Oireachtas source

-----a pension so it cannot be factored into it because it is already there.

Ms Mary Kennedy:

The report examined the level of contribution that would be required to fund the State pension. The class A is a 14.75% contribution which comprises 4% from the employee and 10.75% from the employer. At present a self-employed person receives the exact same pension on the basis of a 4% contribution. The report found the level of contribution required to fund the State contributory pension is 15% for employees and self-employed people. If one wants to add additional benefits for the self-employed, the report has found the level of contribution required would be 16% to provide jobseeker's benefit and a pension and 17% to add invalidity pension to this.

As I stated, the purpose of the review is to examine various issues and provide information to the Minister and the Government to enable them consider various matters. Senator Moloney raised the issue of the self-employed and this is the information provided to us by the report on extending additional benefits to the self-employed and what the appropriate contribution would be to do this.

Marie Moloney (Labour)
Link to this: Individually | In context | Oireachtas source

I am not sure whether my next question falls within Ms Kennedy's domain. When a self-employed person's business goes belly-up and he or she applies for jobseeker's allowance, if it is granted the person cannot get a credit when signing for it simply because he or she was self-employed. This is discrimination. Such a person has paid taxes and the required amount of PRSI but is not awarded a credit contribution. This is grossly unfair and needs to be examined.

Ms Mary Kennedy:

That is correct and we are aware of it. I know the Department will examine it. The report examines the question of credits but it does not specifically address self-employed credits.

Joanna Tuffy (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

Has bringing the universal social charge into the fund been considered? Would it be appropriate?

Ms Mary Kennedy:

PRSI is a contribution to the social insurance fund from which one receives a benefit. The universal social charge is more in the nature of being a tax, so they are not the same.

Joanna Tuffy (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

It is general taxation.

Ms Mary Kennedy:

Yes.

Joanna Tuffy (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

Many people perceive the universal social charge as being similar to social insurance. Is there a possibility for them to be linked?

Ms Mary Kennedy:

The distinction is that with PRSI one pays a contribution and receives a benefit but the universal social charge is a charge rather than a contribution.

Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I have a number of questions and some of them are quite specific so I hope the witnesses will be able to answer them. I understand the restrictions so I will try to frame them to allow our guests to comment without straying into questions the Minister would answer if she were here. At present there is tax relief on private pensions. My party has argued it should be at the standard rate, and some of us have suggested it should be abolished altogether because the tax foregone by the State would be more than enough to cover the deficit.

At one stage, the suggestion was to reduce it to 30% or thereabouts. Has there been a major movement in that regard?

The report examined the impact of the re-rating of benefits to the consumer price index, CPI, rather than average earnings, which is the current aspiration. Were other indexing options considered? For example, the Vincentian Partnership for Social Justice has developed an interesting consensual model for establishing minimum budgets for various household charges. Some indexation used to be skewed because a number of costs were quite high. When mortgages went through the roof, so too did the CPI, which incorporated those figures.

According to page 7 of the summary, the report assumes that the expenditure on illness benefit will decrease during the next five years due to changes in the duration of the entitlement. Is this a reference to a plan to introduce statutory sick pay or are further cuts or changes to the illness benefit that have not been signalled properly on the horizon?

In response to the national pensions framework, TASC suggested that a different type of State pension system be considered, namely, a two-tier pension with an auto-enrolment. I do not know whether the suggested model has been discussed or whether a consequential review of or change to the framework is intended. An auto-enrolment model could be managed by the Social Insurance Fund or the Department instead of the private sector.

Ms Mary Kennedy:

The Deputy covered a number of issues. I will call on Ms Murphy to discuss the pensions issue. The question of tax is not appropriate to us, as we handle PRSI.

Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

Tax relief of pensions. As I might be making a political statement, I understand that Ms Kennedy cannot comment. If tax relief on private pensions were removed, the shortfall could be addressed overnight.

Ms Mary Kennedy:

We cannot comment on that suggestion. I will ask Ms Roche to revert to the Deputy regarding the indexation model. Various models were suggested in the scope of the review. Ms Murphy will address the question on TASC and the framework.

The Deputy mentioned illness benefit and the reduced cost. He will recall that, in social welfare legislation approximately two years ago, we changed the entitlement. Previously, if one had more than 260 paid contributions, there was no limit to the period covered by one's illness benefit. A two year limit was introduced, which is what we were referring to when we spoke of an impact. One cannot stay on illness benefit forever. Previously, a limit only applied if one had fewer than 260 paid contributions.

Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

It is kicking in.

Ms Mary Kennedy:

It has been in place for approximately two years.

Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I understand. This is the effect of the limit.

Ms Mary Kennedy:

Exactly. I invite Ms Murphy to address the pensions issue, after which Ms Roche can address indexation.

Ms Patricia Murphy:

Auto-enrolment was suggested for consideration in the context of the national pensions framework. The OECD is carrying out a review of long-term pension policy. The review was commissioned by the Minister, will consider this issue and will presumably be included in the report.

Ms Joanne Roche:

It was within our scope to consider a number of indexation measures on the pension. One suggestion was to increase the pension in line with the stated target of the national pensions framework, some 35% of national average earnings. It currently stands at 33% on our base case and will presumably continue at that rate. We also considered a scenario in which the pension would increase in line with the CPI.

Another scenario we examined is mentioned on page 83, namely, exposure to the risk of poverty. As contained in the request for tenders, the measure of the risk of poverty was the survey of income and living conditions. According to our observation, the current rate of the contributory State pension, some €11,976 per annum, is above the risk of poverty threshold of €10,831 per annum. Given that our base case assumes the pension will keep pace with earnings growth, the pension should remain above the threshold, which has been defined as 60% of median income. Section 10 contains a number of figures and tables that set out the scenarios. For example, table 10.3 provides a good example of the CPI link.

We considered uprating the pension as high as 40% of national average earnings. The relevant figures have been set out as well. As one would expect and as shown in figure 10.1, the shortfall increases significantly, particularly at the end of the period due to compound growth. In our base case, the shortfall resulting from increasing the pension to 40% of national average earnings would grow from 5.7% of GNP to 7.4% by 2066.

Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

I thank the witnesses.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

I welcome the panel. This is a good opportunity to discuss these issues. I am Fine Gael's Seanad spokesperson on social protection. It is a mind-boggling area, given that there are 64 schemes. I have made a submission to the committee chaired by the former judge, Joseph Mangan. Due to the current crisis, many more people need help than used to be the case.

I apologise for being late. Some of my questions may have been asked, but I would like to tease out the issues with the panel. The shortfall in the Social Insurance Fund is €1.5 billion. Does the fund pay for all the schemes?

Ms Mary Kennedy:

It pays for contributory schemes that are not means tested, for example, the contributory State pension, jobseeker's benefit, invalidity pension, illness benefit, etc.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

It does not pay for child benefit.

Ms Mary Kennedy:

No.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

Which fund pays for child benefit?

Ms Mary Kennedy:

State funding pays for it. "Vote and fund" is a simple way of putting it. The latter pays for benefits under contributory schemes.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

The non-contributory pension is not paid for by the fund.

Ms Mary Kennedy:

No.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

It is paid for by State funding.

Ms Mary Kennedy:

There are three categories of scheme, those being, contributory, assistance and universal. Child benefit is an example of a universal scheme.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

The rate at which the shortfall is increasing is stunning. The shortfall is predicted to reach €3 billion by 2019 and €25.7 billion by 2066. Is there a chance that gardaí, nurses, doctors and so on who retire in ten years' time will find that, having paid their contributions, no pension exists?

Ms Mary Kennedy:

We cannot comment on anything like that. The report provides information on the health of the Social Insurance Fund and the fact we had a surplus for a number of years.

During the majority of its lifetime, the fund has received a subvention. The report examines the scenarios and presents details of action that will need to be taken to ensure it continues.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

Some groups in society, such as the self-employed who are now unemployed, are at risk. These were the people who provided employment and paid employers' as well as employees' PRSI. What is being done for them? I have raised with the Minister, Deputy Burton, the possibility of allowing self-employed people to contribute to a social insurance fund at a level which would ensure some sort of payment for them if their business collapses. As far as I am aware, this has never been an option for them, which is disrespectful to them as employers.

Ms Mary Kennedy:

That issue has already been raised.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

I apologise.

Ms Mary Kennedy:

The report deals with the area of self-employment in terms of the appropriate employer and employee contribution level for pension and, in the case of self-employed, what it would cost, in addition to the State pension they receive based on the 4% contribution, to provide jobseeker's benefit and additional pension. Those figures are contained in the report.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

What is the cost?

Ms Mary Kennedy:

The current contribution level for a class A employee is 14.75%, which is the 10.75% employer and 4% employee contribution. Self-employed contributors currently pay 4%. The report determined that the contribution level required for the State pension contributory for employees and self-employed would be 15%. The contribution rate for a self-employed person if jobseeker's benefit is added would be 16%, which equates to 15% for the SPC plus an additional 1% for jobseeker's benefit. If one wanted to provide cover for invalidity pension, which has also been mentioned, the contribution would be 17%.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

Currently, a self-employed person pays 4%.

Ms Mary Kennedy:

Yes.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

Is Ms Kennedy saying it is possible that if they pay 16% they would, in the event of their becoming unemployed, be entitled to jobseeker's benefit?

Ms Mary Kennedy:

I cannot say what is or is not possible. I am stating what is suggested in the report. We have asked KPMG to look at the self-employed issue which is an area of huge concern owing to the downturn. The issue is also raised regularly by way of parliamentary question. The report has looked at what would be the required level of contribution in that regard and has come up with the figures I have given. The advisory group on tax and social welfare is also looking at the issue. As such, the Department is looking at the issue in a number of different ways. As to what will happen, I cannot say. While the advisory group will report on the matter, the final decision will be one for Government.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

From a policy point of view, does Ms Kennedy believe it is possible to provide that option going forward?

Ms Mary Kennedy:

I cannot comment on that.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

The Department has probably looked at the situation in other jurisdictions, including across the water. Am I correct that that option is available at a European level?

Ms Mary Kennedy:

Different systems apply. As such, it is difficult to compare one country with another. All we can do at this point is compile the information and examine it. It will then be up to Government to decide where to go on the issue.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

Sick pay is a controversial issue. The Minister has put forward the proposal that an employer should pay for the first 28 days of sick pay in respect of employees. I have resisted this proposal from day one. We have heard a number of presentations on this issue, including one yesterday from the small and medium-sized enterprise, SME, sector, at which it was indicated that if the Minister moves on this proposal, some 20,000 indigenous jobs in this country could be lost. Employers could not meet this cost. The evidence indicates the average number of sick days taken in the public sector is 11 compared with three to six days in the private sector. Even though overall absenteeism in the private sector is lower, employers could still not meet that cost.

I accept the witnesses cannot comment on policy. However, I presume they are hearing the arguments against this proposal. Other solutions must be found. I would not welcome a situation whereby our small and medium-sized enterprises would be forced to relocate to, say, Wales or to hire their employees from Northern Ireland, which is what they will be faced with if the Minister's proposal in regard to sick pay is introduced for the sake of balancing the books. I understand the Minister, Deputy Burton, is under pressure. Perhaps it could be provided that the employee also bear some responsibility around sick pay. I would welcome Ms Kennedy's comment, if possible, on that issue.

Ms Mary Kennedy:

The Senator will appreciate that I cannot comment on that matter. All I can say is that my departmental colleagues are looking at the issue and will take on board her comments today.

Joanna Tuffy (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

Members will have an opportunity to raise some of these questions with the Minister when she appears before us next week and may at this time express their opinions, which will be noted.

Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

Significant changes are occurring in our society, with emigration a major issue. Those emigrating have traditionally been the ones paying the tax which assists the fund. Was the trend, in terms of the 50,000 to 60,000 people emigrating, taken into account? I accept the current make-up of emigrants is slightly different from that of previous emigrants and that some are families who are established and have work but who are on reduced pay. Despite the downturn, many people have managed to hold on to their jobs. However, the problem is that they are on reduced pay, with no overtime or bonus payments available on which they would have paid PRSI. Has this been taken into account in the immediate prediction? It is presumed we will be out of recession in five or ten years. However, emigration at the rate predicted suggests we may face a bigger problem in the future.

Ms Joanne Roche:

Our assumptions are predominantly based on the 2012 ageing report commissioned at European level. The migration assumptions coincided with the assumptions as set out in table 6.6 of the report. The Deputy is correct that net outward migration at the start of the projection period of -22,000 in 2010 is assumed. During the course of our view, we checked the census figures to get a sense of the position in 2011, which were consistent with our assumptions. We have assumed that by 2020 there will be net inward migration of 22,500. As such, migration in 2015 will be nil.

Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

We hope.

Ms Joanne Roche:

Yes. We have run some stresses on the migration assumption. These are set out in section 8 of the report. Having consulted the Central Statistics Office, CSO, in terms of what would be a sensible stress, we looked at plus 10% and minus 10% migration figures. We also looked at a zero migration scenario. The fund is not overly sensitive to migration, predominantly because of expenditure pressures on the pension owing to our ageing population.

Page 65 of the report indicates that in a zero migration scenario, where there is no net inward or outward migration, the shortfall on the fund is projected to be €29 billion, compared with €26 billion under the base scenario. Particularly in the later years of the project, the increase in the shortfall becomes more pronounced, as the contributions from the working group are missed, and migration is concentrated in the working-age population.

Marie Moloney (Labour)
Link to this: Individually | In context | Oireachtas source

I am sorry to return to an issue that has been mentioned previously, but I did not want to interrupt the previous speaker. Illness benefit is paid for two years. I know a person who suffers from leukaemia and is undergoing treatment. That person has come to the end of the two-year period and is faced with a scenario of going on disability allowance or an invalidity pension. The problem is that his job is being kept for him, but his P45 is being requested to go on to the invalidity pension. Some people are getting caught in a little trap, so are there any exceptional circumstances in which illness benefit can be extended? Is this outside the remit of the witnesses?

Are there costings for the overseas pensions being paid? If somebody went to England after working for ten years here, and if that person paid into the British system rather than the Irish system, he or she can get a pension based on a pro rata system. I know we have bilateral agreements with many countries and are paying pensions that way, but is there a costing for those?

Mr. Paul Morrin:

The best figure we have is the number of pensions paid overseas. However, that could include Irish people who move abroad who are of pension age.

Marie Moloney (Labour)
Link to this: Individually | In context | Oireachtas source

They would include people who worked in this country and moved abroad afterwards. There is no idea of what is being paid in that respect?

Mr. Paul Morrin:

We can only cost that when a person claims a pension. The EU record comes into play at that stage.

Marie Moloney (Labour)
Link to this: Individually | In context | Oireachtas source

Surely we have an overall figure for the number of pensions being paid overseas.

Mr. Paul Morrin:

We will do our best to compile it with the statistics we have and send it to the committee.

Marie Moloney (Labour)
Link to this: Individually | In context | Oireachtas source

Could we examine the area further? If people have moved abroad and are contributing to another country's economy, we would, in effect, be paying a double pension; the people would get a pension from the country in which they live as well as Ireland. If the people in question made contributions here, that is fair enough, but should the rate not be quite reduced?

Joanna Tuffy (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

People pay contributions on the basis that they get certain returns. We cannot start to discriminate between categories of contributors if the contributions are the same.

Marie Moloney (Labour)
Link to this: Individually | In context | Oireachtas source

The people in question would have moved abroad and contributed to another economy. They can use the contributions paid in the other country to supplement the pension from Ireland. Is that correct?

Joanna Tuffy (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

Yes. The other side of the argument is that the same thing happens in this country. Many people in Ireland get pensions from working abroad. It is probably a case of swings and roundabouts.

Marie Moloney (Labour)
Link to this: Individually | In context | Oireachtas source

I am just asking that the area be examined. We are looking through a glass darkly at increasing PRSI contributions from employers and employees, which could be detrimental to employment. There are areas that could be considered and we must make some hard decisions. Unfortunately, that is a result of the current economic climate and hard decisions must be made, whether we like it or not.

Joanna Tuffy (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

It would be helpful to have that information. I notice the report indicates that the shortfall at the end of the projection period is now smaller than that projected in the 2005 review, and the reasons for this have been explained. For example, there is lower pension-related expenditure than previously projected and lower projected expenditure in a number of categories, such as jobseeker's and illness benefit. That is very different to the information that has been in the public domain over the past couple of weeks, and some of the coverage has been exaggerated. Ms Kennedy indicated that the figure of €324 billion refers to the sum of all annual deficits up to 2066, expressed in current terms, assuming no action is taken. That figure was very much the headline in at least one media outlet.

I know the witnesses cannot comment on policy but people such as us really need a menu of options. People know the choice of cutting, which is a blunt instrument in achieving savings, but what kind of options are available to increase the fund by way of PRSI rates? Is there a menu of options we can consider?

Ms Mary Kennedy:

I could not possibly comment on that. The report gives certain information about what might need to be done if figures need to be changed. We could not possibly suggest a menu of options as it would be a political action.

Joanna Tuffy (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

Politicians may suggest certain actions but we do not have the information available to project the consequences of a certain approach. This amounts to more than just issues of policy. I submitted parliamentary questions that contained a "what if" proposal for getting rid of a tax relief, for example. The answer had an estimate of the yield to the Exchequer, although it was qualified to allow for different scenarios. Surely the Department of Social Protection should be able to do something similar? It is not political to indicate that if a certain action was taken, there would be a particular yield.

Ms Mary Kennedy:

I understand the question to be more about what kind of options can be considered rather than what would happen if a rate was increased by a percentage. That is a different kind of scenario.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

That is what we need. If we frame a question badly and as a result the witnesses cannot answer, we will not learn anything new or go anywhere. The Chairman is right in that we need a menu of options. It would also be useful to hear what appears to be working well in other countries. It is up to us to work out policy with the Minister. We are not necessarily taking enough with us from this process.

Ms Mary Kennedy:

It is clearly awkward for us as there are certain elements we cannot discuss. It would not be appropriate for us to suggest a menu.

Joanna Tuffy (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

It is a matter we can raise with the Minister and we can revert to the witnesses. Some of the issues concern the self-employed, for example; if the self-employed do not get a contributory pension, the chances are they will be reliant on a non-contributory pension in future.

Ms Mary Kennedy:

They have cover for the contributory pension. They do not have access to jobseeker's benefit, which is the main issue.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

With regard to the self-employed, the estimates gave a figure of 16% for PRSI contributions to give them what they currently have - the contributory pension - and jobseeker's benefit. Is that correct?

Ms Mary Kennedy:

Yes.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

There would be nothing else?

Ms Mary Kennedy:

They would have what they have at the moment. The report considered that. I keep going back to the point that the report found that the appropriate contribution rate for the State pension for everybody would be 15%. There would be additional benefits required by a self-employed person, such as jobseeker's benefit, with a rate of 16%.

Those are the figures produced in the report.

Marie Moloney (Labour)
Link to this: Individually | In context | Oireachtas source

Does 4% entitle a person to a contributory old age pension, a bereavement grant, a widow's or widower's pension and maternity benefit?

Ms Mary Kennedy:

That is right.

Marie Moloney (Labour)
Link to this: Individually | In context | Oireachtas source

The 4% seems to cover an awful lot. We have to jump up to 16%-----

Ms Mary Kennedy:

I think the Senator can probably take from that, as the report has found, the self-employed do extremely well from the social insurance fund. That is what the value for money section of the report-----

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

From 4%.

Ms Mary Kennedy:

It points out that the self-employed do incredibly well from-----

Marie Moloney (Labour)
Link to this: Individually | In context | Oireachtas source

From 4%.

Ms Mary Kennedy:

-----the social insurance fund, in particular if one takes the €253 flat rate which people pay.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

To go back to the Senator's point, for the 4%, it is not just the contributory pension, they also would-----

Ms Mary Kennedy:

What we term "long-term benefits" are covered but the-----

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

Meaning maternity leave, etc-----

Ms Mary Kennedy:

Maternity benefit is also in there. It would not really be a long-term benefit but it is one of the things the self-employed get in addition to the long-term benefit of State pension and survivor's benefit.

Fidelma Healy Eames (Fine Gael)
Link to this: Individually | In context | Oireachtas source

Ms Kennedy mentioned the bereavement grant and another one.

Ms Mary Kennedy:

Survivors.

Marie Moloney (Labour)
Link to this: Individually | In context | Oireachtas source

And maternity.

Joanna Tuffy (Dublin Mid West, Labour)
Link to this: Individually | In context | Oireachtas source

Are there any further questions? I thank the officials. What has come out of the discussion is that it would be very helpful to us, as Oireachtas Members and members of the committee, to have a menu of options and if it was possible to talk to the Minister about that in terms of the range of options available to address the shortfall in the fund.

I thank the officials for the presentation. I know there was a small enough attendance today but we have had a very helpful debate and the main spokespersons were here. This is in the public domain and the fact we have had this meeting will have helped that process. We need an ongoing debate around this very important issue. I thank the officials again for starting that debate. If there is no other business, we will adjourn.