Oireachtas Joint and Select Committees

Wednesday, 20 November 2013

Joint Oireachtas Committee on Education and Social Protection

Social Welfare Benefits: Discussion with Department of Social Protection

1:10 pm

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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I welcome representatives of the Department of Social Protection. Witnesses are 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 or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Their opening statements or any other documentation they have may be published on the committee website after the meeting.

Members are reminded 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.

The topic for discussion is the entitlement of self-employed persons to social protection payments. The Select Sub-Committee on Social Protection discussed the matter briefly in July last in the context of its discussion on the 2013 Estimates. Since then, the Department has published a report on the matter. Today's discussion is part of an ongoing look at this issue in terms of our having discussed this issue last year with a group from Dundalk representative of self-employed people. We also discussed it at that stage with the Department.

I welcome Ms Mary Kennedy and Ms Aideen Mooney from the Department of Social Protection to the meeting and invite Ms Kennedy to make her opening statement.

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.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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I thank Ms Kennedy for her presentation.

Photo of Marie MoloneyMarie Moloney (Labour)
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I welcome the witnesses and thank Ms Kennedy for her presentation. I have been involved for quite a while in the campaign for benefits for the self-employed, many of whom are struggling. I am speaking in this regard not of people who own large companies but about small contractors such as plumbers, carpenters and mechanics and so on who are getting only minimal amounts of work. It is hoped the situation will change in due course. We are where we are and need to deal with the situation.

Reference was made to class S contributions, under which the bereavement grant is no longer available owing to budgetary changes. Ms Kennedy, when speaking about class S contributions, did not mention the orphan's benefits. I presume it is still available under class S.

Ms Mary Kennedy:

Yes.

Photo of Marie MoloneyMarie Moloney (Labour)
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That is good. It is regrettable that, as announced in the recent budget, PRSI contributions are to increase from January next.

Ms Kennedy spoke about the means-tested jobseeker's allowances if a person's business ceases. While I accept that is happening, I have come across cases of people who were self-employed, but did not have accounts because the business went so bad they could not afford the accountant. They have no official accounts for social welfare purposes and it is causing many problems. A person who worked in 2012 and is signing on in 2013 would not have accounts done until the end of the year and therefore it is not possible to provide accounts for 2012.

I have come across cases where people who worked in 2012 were having their payments reduced by the Department owing to what is termed a "projected income" they could have had. It seems impossible to get across the message to the Department of Social Protection that the work the person had in 2012 is gone. The Department suggesting the person could possibly make a particular amount in 2013 is a catch 22. We need to address that issue of projected income.

The actuarial review took place between 2000 and 2005, which was probably the height of the boom. Why must the self-employed pay 15% to 16% when PAYE workers pay only 14.5%? Why is it necessary for the self-employed to pay 1.5% more than PAYE workers to get the same benefits?

I welcome that the group recommended the extension of long-term sickness benefits on a compulsory basis and that the rate of contribution for Class S should be increased by at least 1.5 percentage points. That is very important because many people have no income when they get sick.

1:20 pm

Photo of Ray ButlerRay Butler (Meath West, Fine Gael)
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I am very disappointed that there are no members present from the main Opposition parties, Fianna Fáil and Sinn Féin. This is a major issue given that there are 300,000 to 400,000 self-employed in the country and they have been neglected for far too long by previous governments. The Minister, Deputy Burton, has done a considerable amount for the self-employed, including lowering the threshold so that they can get social protection.

I recall canvassing a house where a gentleman had been self-employed and his business, which was based at the side of his house, had ceased trading. I went into his office and saw all the files for the income tax, VAT and PRSI he had paid into the system. When he needed help from the system, there was no help there for him. Thankfully the Minister has now changed the requirements to allow such a person get a letter from the accountant stating the business has ceased trading in order to be assessed for social welfare. We have advanced in leaps and bounds. When I was elected to the House two years ago I recall asking about social protection for the self-employed. A civil servant told me it would be impossible because it would require a stamp of 30%. We have come a long way from 30%; we are down at 15% and 5.5% for sickness and disability benefits.

I welcome that 80% of the formerly self-employed people, who applied, qualified for social protection. This is proof of the Government's commitment to supporting our business community through good times and bad times.

The first step is implementing a new class stamp of 5.5% for the self-employed. I discussed this with the Minister during a Topical Issue debate this week. We do not need to apply the full 1.5% straightaway because we understand the existing climate. We can introduce it in stages by starting at 0.25% and building it up over the years, as the economy gets better. I ask Ms Kennedy and Ms Mooney to give me their opinion on that. We need to remember that we are looking after self-employed people at the moment so the PAYE worker is footing the bill. We need to put in place a system that is fair to everybody, including the PAYE worker who is helping the self-employed person now. That self-employed person is not paying on his stamp for the entitlements he is getting so we need to be fair to everybody.

We are the last country in industrialised Europe not to have social protection for the self-employed. I have studied various countries. In the United Kingdom calculation of social protection for self-employed is through their profits. For the first €7,000 profit in a business, the person can get an exemption form and not pay anything. For profits between €7,000 and €11,000, they pay €3.30. For profits from €11,000 to 45,000, they pay 9% on a stamp which entitles them to most payments. However, they are means tested on long-term payments. I believe we should go with the 5.5% for the sickness and disability pay and then means test it with the UK model in mind for long-term payments.

Coming from a self-employed background I have always advised businesspeople that if they are making a profit in their business they are paying income tax. If they are not making a profit and are breaking even, they are paying tax on their drawings. Would they not be better clipping a little bit of this over to a stamp to give them security to pay their family bills etc.? ISME came rushing out like a greyhound out of the traps and claimed it was an extra tax on the self-employed. ISME should back off. I ask it and other groups if we should leave the system as it is when it does not work. I have visited the houses of self-employed people to find they are suicidal because they have no payments. I recently appeared on a LM-FM radio phone-in programme. One woman was working and her husband got sick. They had a mortgage and three children. Just because she was bringing home approximately €400, her husband, as a self-employed person, was entitled to €1.50 a week. I call on ISME to give this some thought and to be fair.

The IFA and other organisations have supported what we are saying but they want it to be voluntary. Unfortunately, a voluntary system will not work and it needs to be mandatory. I know this is being discussed at Cabinet and it will eventually happen. I want to see it happen sooner rather than later. I point out to all these organisations that we do not need to slap them with 1.5%; we can gradually introduce it. However, it will be the first time self-employed people in this country will ever have been recognised through social protection.

Ms Mary Kennedy:

In fairness, the self-employed are covered for the longer-term benefits under the Class S contribution. We have to acknowledge that there is cover at the moment. They do not have access to short-term benefits and that was what we were examining. It has become a significant issue in recent times with the downturn in the economy.

The actuarial review analysed providing two additional schemes for the self-employed and the advisory group on tax and social welfare also produced a report. All that work was done in recognition of the difficulties we have in providing additional supports for the self-employed. As the Minister has said, we now need to take the findings of those two reports and examine where we can go in providing that additional cover. The advisory group on tax and social welfare report indicated that jobseeker's allowance covers the particular short-term need and therefore did not see the need to extend the cover for the self-employed to jobseeker's benefit. However, the report also had findings on the illness side and in particular on invalidity pension.

It is important to be clear that the group took the view that if there was a need to extend cover for invalidity pension and partial capacity benefit, we should consider extending cover to those areas. In that context, it is a case of what payment would be appropriate to provide the benefits. I recognise what the Deputy is saying-----

1:30 pm

Photo of Ray ButlerRay Butler (Meath West, Fine Gael)
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Can I cut across Ms Kennedy? In the old days before the Government came to power if a person was self-employed, he had to get figures from the previous year. For example, for 2013, a person would have to get figures for the 2011 and 2012 accounts. In many cases, as the Senator said, when a person goes out of business, he has no money. Basically, he is left out in the wilderness because he cannot pay the accountant to do up the figures and he cannot pay income tax because he has gone out of business. A person used to be in no man's land. Since the Minister has come in, she has dropped the threshold levels. It has changed. People are entitled to social protection now but before that was not the case. It was like a minefield to try to get this through. A person had to ensure all the payments were made. Then he had to go to the accountant to get the books done up but the accountant could leave the person with a bill for several thousand euro which the person simply did not have. He was in a catch-22 situation. It has changed.

We need a new system. I understand what Ms Kennedy is saying about the self-employed situation. There is no perfect glove that will fit social protection and self-employed situations but we need a system in place.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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I will come back to Ms Kennedy. People will get another chance because we have a smaller group today. Please finish, Ms Kennedy, and then I will go back to the other Deputies.

Ms Mary Kennedy:

The advisory group looked at one issue relating to how the self-employed are different from employees in respect of illness, especially a short-term illness situation. A self-employed person has the ability to have her business continue. I realise Senator Moloney was referring to the plumber or the carpenter but because the self-employed are a different group, there is no one-size-fits-all for them since there are so many people encompassed by the global title or name. Therefore, many different things need to be taken into consideration. That is why the group came down with the invalidity pension and particular schemes that were necessary. A self-employed person, unlike an employee, might have the ability to survive for a period either by having others working for her or by recovering what she might have lost while she was out sick and so on. That is why the recommendations were made for longer-term cover.

Senator Moloney asked the question - it was raised at the committee last year as well - about the figure of 15% or 16% for the self-employed versus the figure of 14.75% for employees. The most recent actuarial review was in 2010. There were other reviews in 2000 and 2005 but the most recent review was at the end of 2010.

Photo of Marie MoloneyMarie Moloney (Labour)
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Are the figures based on 2010?

Ms Mary Kennedy:

Our figures are current. The point is the figure of 14.75% is very good value as well. Let us consider the fact that the Social Insurance Fund is in deficit. One could argue that, over time, the figure of 14.75% is attractive. The review did not examine the employee rate in particular but rather what it would cost to provide additional benefits to the self-employed. That is where those figures came from.

Photo of Marie MoloneyMarie Moloney (Labour)
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I hope Ms Kennedy is not here to tell us that the Department is bringing PAYE workers up to that percentage as well.

Ms Mary Kennedy:

I am not. I am simply saying that the question the actuarial review group considered was specifically in respect of what the cost would be to provide cover to the self-employed. Essentially, that is where those figures have come from. What the actuarial review group examined was specifically in respect of providing additional cover for the self-employed.

Deputy Butler referred to another matter. The point is the advisory group report went to Government. The Minister has said it will feed into the deliberative process and the question of how we might develop a new scheme of invalidity pension for the self-employed. Deputy Butler raised the issue of how that might be done and whether we should increase the contribution from the current figure of 4%. The figure of 1.5 percentage points was a reference to the actuarial review. What the actuarial review stated, however, was that to provide the current State pension to the self-employed, the rate should be 15% rather than 4%, which is what they currently pay. We asked the actuarial review group to examine the cost of providing jobseeker's benefit in addition to the State pension and, additionally, the cost if we were to provide invalidity pension as well. The figures came to 15% for the State pension, 16% plus for the jobseeker's benefit and 17.3% to provide State pension contributory plus jobseeker's benefit plus invalidity pension. The figure of 1.5 percentage points should not be taken in isolation from the actuarial review group conclusions.

Deputy Butler made a point about making an increase to provide additional benefits to the self-employed. Deputy Butler suggested if that was going to be done, it should be done on a phased basis. That is something we will be considering as part of any examination of the advisory group suggestions in respect of invalidity pension. The group recommended that jobseeker's benefit was not warranted but that consideration should be given to providing invalidity pension for the self-employed. The next question is what that should cost and what any such scheme would look like.

The self-employed are not the same as employees. A person must prove incapacity for work and the question is how that would apply. Invalidity pension relates to longer-term incapacity. It means being permanently incapable. If we go down that road, the next challenge is how to work at developing a scheme that would meet the different situations of a self-employed person compared with an employee. If an employee is out sick or permanently incapacitated, she has no capacity to earn an income. Since there are so many different types of self-employed people, the question is how to develop such a scheme.

Photo of Brendan  RyanBrendan Ryan (Dublin North, Labour)
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My question relates to something Ms Kennedy was coming to from a different angle, that is, the comparison contained in the actuarial review in terms of the effective annual rate of contribution of 4% versus 15%. Did the Department carry out a costing in terms of what the employees ought to pay as a percentage of their income for what they actually get? I realise Ms Kennedy was coming from a slightly different perspective.

Ms Mary Kennedy:

The actuarial review did a full examination of what the Social Insurance Fund will look like up until 2066 if we do not change what we are doing at the moment. That produced some stark figures relating to the level of contribution that would be required if we want the Social Insurance Fund to break even. We have the figures in the actuarial review and I can certainly come back to the committee with them. I simply do not have them in my head at present. It was a general review of the Social Insurance Fund. The main purpose of the actuarial review was to review the Social Insurance Fund having regard to the people who will be coming up to pension age and so on and how well it is funded to meet the requirements over the period from 2010 until 2066.

One of the things we asked the review group to do specifically, because of the issue of the self-employed, was to consider the cost required to provide two specific types of benefit, namely, jobseeker's benefit and invalidity pension, for self-employed people. The first thing the group examined was the level of contribution required to fund the State pension. Self-employed people currently pay 4%. The figure the consultants calculated for the appropriate contribution for a self-employed person was 15%. Using that as the level of contribution required for the State pension, the incremental additional cost for jobseeker's benefit was 16.5%.

Then, the cost for jobseeker's benefit plus State pension plus invalidity pension was 17.3%. That is where those figures came from.

1:40 pm

Photo of Ray ButlerRay Butler (Meath West, Fine Gael)
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Ms Kennedy is saying-----

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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Sorry, Deputy-----

Photo of Ray ButlerRay Butler (Meath West, Fine Gael)
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-----that a 16% contribution would be for jobseeker's benefit in addition to core State pension.

Ms Mary Kennedy:

Yes.

Photo of Ray ButlerRay Butler (Meath West, Fine Gael)
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She is saying that contribution would be at 15% to 16%.

Ms Mary Kennedy:

Yes.

Photo of Ray ButlerRay Butler (Meath West, Fine Gael)
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Then, Ms Kennedy is saying the cost for the entire package would be 17.3%.

Ms Mary Kennedy:

Yes, that is what the actuarial review found, having been asked specifically to do the costing. It did not carry out a specific costing on what should be the rate for contributors but if one looks at the actuarial review's findings on what the contribution should be, they would be far in excess of 14.75%.

Photo of Brendan  RyanBrendan Ryan (Dublin North, Labour)
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Okay. Just to comment-----

Ms Mary Kennedy:

The Deputy asked the question and while it was not a specific question, I note the actuarial review looked at the level of contributions. As there is a shortfall at present, which is projected to increase over time until 2066, the review considered what changes one would need to make to address that. However, as the Deputy is aware, the Social Insurance Fund is funded on a tripartite basis, that is, by employers, employees and the self-employed and then there is a residual financier, which effectively is the State. I am not stating today there will be an increase in the 14.75% rate as obviously, that is not my decision.

Photo of Brendan  RyanBrendan Ryan (Dublin North, Labour)
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No, that is an analysis.

Ms Mary Kennedy:

However, the actual review considered what would need to happen in respect of the Social Insurance Fund to address the current shortfall and the need to fund pensions until 2066.

Photo of Brendan  RyanBrendan Ryan (Dublin North, Labour)
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One thing I find, as does Deputy Butler, is slight frustration regarding employer organisations. The reason this debate has been held today and in recent years is because of demand from people who previously were self-employed but who find themselves out of work because of the recession. It has been suggested that they are getting nothing and that nothing is available for the self-employed. Ms Kennedy has indicated clearly there is, namely, the jobseeker's allowance means tested payment. However, it is strange for the Irish Small and Medium Enterprises Association, ISME, to respond to a demand for something on the part of the formerly self-employed by stating that cannot happen and I find it particularly frustrating.

Photo of Ray ButlerRay Butler (Meath West, Fine Gael)
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If the association is sincere and serious about looking after small businesses and its members, I found it very strange.

Photo of Brendan  RyanBrendan Ryan (Dublin North, Labour)
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There is a need to analyse what it is, what could be available, what would be the costs and then to let the decisions be made.

Photo of Ray ButlerRay Butler (Meath West, Fine Gael)
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I believe that in its statement, ISME was looking after the big man and not the small independent.

Photo of James BannonJames Bannon (Longford-Westmeath, Fine Gael)
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I thank the Chairman for her patience. Throughout Ireland but particularly in the midlands, self-employed people are suffering because before their businesses went into liquidation or folded up etc, they were on the breadline themselves. They actually were working to pay their staff. While that was the position, this does not appear to have been realised by officials within the Department. These people were prepared to take risks and to invest in their communities. There was a great furore about all the grants and so on that were available through the enterprise boards etc. and those people gave up good jobs and went into business on their own, having probably bought expensive equipment, machinery and so on. However, following the downturn in the economy, the whole thing collapsed. In her presentation, Ms Kennedy stated:


However, self-employed workers may establish eligibility to assistance-based payments such as jobseeker’s allowance. [That is okay.] They can apply for the means-tested jobseeker’s allowance if their business ceases.
The major problem I have encountered is those people have assets but cannot sell them. Although those assets are at scrap value, when officials from the Department of Social Protection value those assets, those involved are perceived as being wealthy people. In fact, however, they cannot sell the assets because no one wants to establish a business in the same line. The alternative is to bring them elsewhere and sell them at a huge loss, after which they will have debts with the bank and so on.

This matter should be considered seriously. I know people who have assets in their yards that are taken into consideration and thereby are debarring them from a social welfare jobseeker's allowance. This matter must be addressed and ways must be explored in which to help those people. I do not believe it to be beyond the bounds of the Department to devise a system that is fair. All people seek is such a system because as Deputy Butler noted, I know people who committed suicide when their small businesses folded. I have attended funerals of people and this is not what members want. These people are desperate, are to be found throughout the country and a system must be devised that is fair to them. It is possible to have assets and to be starving at the same time because one cannot sell the assets of a business that has folded in the present climate and nor can people use their assets for productive purposes. The human element in this regard must be considered and soon.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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Does Ms Kennedy wish to reply to that?

Ms Mary Kennedy:

Again, I am not in the area of dealing with day-to-day claims. However, because I appeared before the joint committee last year when a lot of these issues came up, I spoke to a number of divisional managers who deal with the various local offices and so on. In fairness to the Department, various circulars have been issued to all the staff who deal with this kind of work. I obviously do not disagree with anything Deputy Bannon is saying because he has more experience on the ground but my information, from speaking to those divisional managers, is that staff are dealing with matters in a commonsensical and sensitive manner when carrying out means assessments and so on. I do not know precisely what is the rule in respect of the assets to which Deputy Bannon refers but I certainly can bring back that concern to my colleagues.

However, there are probably have been improvements over the years, members probably also are experiencing this themselves, in the manner in which the Department deals with such cases. While people who were self-employed were earning good incomes, over the years and in particular since the downturn, the message to all staff in the field who do such assessments obviously is to have regard to the downturn. As Senator Moloney observed, one cannot project a future income on the basis of a previous income that no longer is realisable. This message is out there and people are applying the more correct approach, which is that just because someone had a particular income last year, it does not mean in any way he or she will have a similar income this year. In fact, such people could have no income at all.

These points all have been accepted and my understanding is that a much more straightforward approach is being taken to means testing. I believe the figures probably bear this out, if one considers the numbers in receipt of jobseeker's allowance who formerly were self-employed. This appears to suggest the treatment people are receiving as part of the means assessment process must have had regard to the various issues raised by members today and that people are qualifying for jobseeker's allowance who perhaps might not have qualified in the past because a different means assessment arrangement was in place.

If issues remain outstanding, the best thing to do is to bring them to the attention of the Department. Obviously, if there are cases in which things are not being done as they should be, they can be addressed. However, I reiterate that I spoke to a number of colleagues working in the regional areas who have responsibility for the staff who carry out the means assessments. Particular issues were raised by members last year about being told to deregister with Revenue, for example, to surrender public service vehicle, PSV, licences and that kind of thing. It has been confirmed to me that this is not the case and in fact, one would never do this because so doing would prevent that person from having an ability to earn moneys. This of course is completely counter-productive to the business we are in because we are only there as an income support. Obviously, if someone has an ability to earn an income, we should be encouraging that and not taking away the means of so doing. This is very much the message out there and people are being dealt with in a very sensitive fashion, having regard to the changed circumstances.

Photo of James BannonJames Bannon (Longford-Westmeath, Fine Gael)
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On a point of information, are the equipment, plant and so on associated with a previous business, still being means tested?

Ms Mary Kennedy:

I cannot give the Deputy the exact answer to that question. I do not know.

Photo of James BannonJames Bannon (Longford-Westmeath, Fine Gael)
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That is where the problem is.

Ms Mary Kennedy:

I will bring that back to my colleagues and we can clarify the position in that regard. If it would help, I can send the Chairman a note on what is the procedure in this regard. I simply do not have that level of detail to hand. However, I spoke to them in a general way and took up the points that were raised by members the last time we spoke to the joint committee. I wish to confirm that the kind of issues that were raised the last time around should not continue to be a concern because the clear instruction is one does not ask someone to deregister or to give back a PSV licence and so on, because that would prevent them from being in a position to earn an income, which is not what we want to do at all.

Photo of Aengus Ó SnodaighAengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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I apologise for my absence at the start of the presentation. Having read what was circulated to members, hopefully the witnesses have covered all that. I acknowledge the change in attitude in respect of the taxi drivers.

I have not had a complaint since the last session we had on this issue. The point Deputy Bannon has raised is interesting as a PSV licence is an asset for taxi drivers, as is their car and other things. In the case of agricultural assets such as farm machinery, a realistic approach should be looked at. Rather than force somebody to sell something that might be useful in the near future, a charge could be put against it in order that in the event of the person selling it, the Department can recoup from it. Most people will not sell it in this day and age but at least there should be a charge so that there is a State interest. Perhaps that issue could be examined.

In terms of the social protection payments, the average contribution rate is 17.3%. Not every self-employed person wants to have anything to do with these entitlements. Some have already made their own arrangements for employment protection, health insurance and pension fund. We should look at an opt-in facility. Perhaps there is a threshold whereby a certain number is needed to opt in. This means that a person who is self-employed would have the option that rather than pay the 4%, he or she may be willing to pay 17.5%. Perhaps that is the way to go, particularly for small shopkeepers who are self-employed or may have one or two employees and especially in this day and age when small retail businesses are affected. That might be a practical suggestion. I understand the concern that the State could not take on board all the self-employed at present unless there was a substantial increase in their PRSI contributions to cover themselves. However, we need to find some way to cover them. A friend of mine had a shop and due to ill health for two years where he was suffering from cancer, from which he survived, he had to sell his shop. Over the next six years, having survived on his savings, he had to reduce them until he had nothing left. He had not made provision for health insurance or employment protection. He ended up with €20,000 before he could qualify for jobseeker's allowance. He is now well enough to return to work but he cannot do so because he has no business, having been forced to sell at the time. That is the pity. The issue concerning his income is a juggle, whereby if somebody has an asset they should survive on it. It was a harrowing experience for him. At one stage he needed to reduce his savings by €1 in order to qualify and it would not be looked at again for a number of weeks.

1:50 pm

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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I call Senator Marie Moloney.

Photo of Marie MoloneyMarie Moloney (Labour)
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The witness said that a self-employed person qualifies for jobseeker's allowance if his or her employment ceases. For many, the employment does not cease. For example, a plumber or carpenter may get a call for a day's work to fix a leak or whatever is wrong with a house. That person may get a few hours work or a day's work now and again. In that case, their employment would not have ceased. Perhaps we could have a scheme similar to farm assist where people could work for a few hours and draw unemployment payment for the hours they are not working. While we say jobseeker's allowance is available, I note that only 20,000 have availed of it. We look at the 85% but that is 85% of what? We are not talking about 85% of the self-employed in Ireland but 85% of those who applied, which is about 20,000. There are a couple of hundred thousand of self-employed persons in the country.

Like Deputy Ó Snodaigh, I am aware of a case of a man who has leukaemia and cannot work. His wife works and her income exceeds the amount he would receive on jobseeker's allowance. They are struggling because they have a mortgage and bills to pay. Sometimes benefit is far more beneficial to the person than an allowance as it is not means tested and would get him over the hump while they are in difficulty. A short-term payment can help one at a time of a short-term problem, but I am not saying that leukaemia is a short-term problem. If a person is ill for a few weeks or a few months, it gets them over a hump. Jobseeker's allowance is not the answer for all the self-employed, especially if one has a working spouse as that income will be taken into account and that person will left without anything.

Ms Mary Kennedy:

I will address Deputy Ó Snodaigh's comments as regards the voluntary or compulsory option. The report considered that issue in detail and gave the reasons it went for the compulsory option. The report states: "Allowing people a facility to opt in or opt out at their own discretion could lead to the selection of bad risks." The whole principle of social insurance is social solidarity where everybody pays in and if cover is needed, one gets it. The report also stated that it could also result in negation of the social solidarity contributory principles which underline the social insurance system. That is the point. Even way back, when consideration was being given to the idea of introducing social insurance for the self-employed, the report quotes from the Dáil debate at the time that every pension scheme is based on a mixture of good risks and bad risks. This is particularly the case with social insurance schemes under which cover is so broadly based. If we were to go with the opt-in or opt-out option, those most likely to want the payment would probably opt in while those who can cover their own costs would not opt in. In that case, how would the cover be provided? Social insurance is compulsory. Everybody pays into it and in the event of illness or unemployment, a person can make a claim. If we were to have an opt-in or opt-out option, it would undermine the whole social solidarity principle on which the whole social insurance system is based.

Photo of Aengus Ó SnodaighAengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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I was not suggesting an opt-out.

Ms Mary Kennedy:

However, the Deputy is saying he wants it to be voluntary rather than compulsory.

Photo of Aengus Ó SnodaighAengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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At the moment one has no option at all.

Ms Mary Kennedy:

Yes.

Photo of Aengus Ó SnodaighAengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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There are self-employed persons who would prefer to pay into a system at a higher rate in order that, in the event of something happening ten or 20 years down the road, they have some cover. They do not have that option. Their only option for any type of cover is private health insurance, private insurance to protect their employment or whatever. They do not have an option to say they would pay at the same rate as their employees. It is not that they can opt out.

Ms Mary Kennedy:

I just want to clarify if the Deputy is suggesting that people who currently pay 4%-----

Photo of Aengus Ó SnodaighAengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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For the self-employed.

Ms Mary Kennedy:

-----could opt to pay 14.75% and qualify for the benefit?

Photo of Aengus Ó SnodaighAengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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Yes, and after a certain number of years, but not somebody who is about to go under where, after signing up and paying for six months, suddenly he or she qualifies. Everybody else has to qualify based on their contributions.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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In a boom time people will not contribute. They will presume it will continue forever. That is the way people think.

Photo of Aengus Ó SnodaighAengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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That is the way they are covered.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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We want people to be covered.

Photo of Aengus Ó SnodaighAengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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People will not lose their cover. I have no problem with imposing it but in the meantime there is nothing as the decision has not been taken to make it compulsory at a higher rate.

Ms Mary Kennedy:

In that situation we will be faced with the issue of how long they would have to pay the additional contribution before qualifying for the benefit as part of the scheme deliberations.

Photo of Aengus Ó SnodaighAengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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That is already the case for the employees who have to pay.

2:00 pm

Ms Mary Kennedy:

Exactly.

Photo of Aengus Ó SnodaighAengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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A scheme is worked out for five, two, three or however many years.

Photo of Brendan  RyanBrendan Ryan (Dublin North, Labour)
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I presume the actuarial analysis done on the appropriate charge was on the basis everybody was in.

Ms Mary Kennedy:

Yes.

Photo of Brendan  RyanBrendan Ryan (Dublin North, Labour)
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It would be considerably higher if it were on the basis of many people opting out.

Ms Mary Kennedy:

The system is everybody pays the contribution at present and a number of people will claim. There is critical mass across income distribution. Some people pay very high amounts of social insurance while others pay very little. An employee earning less than €356 does not make any social insurance contribution. This is why it is important the entire system is compulsory. The social insurance fund receives significant income from which the expenditure that arises can be defrayed.

With regard to Senator Moloney's contribution, I made a point about employment ceasing, and the point is also valid with regard to low income as a result of a downturn in business. A person's work may have dried up and he or she may get an odd bit of work here and there. If such people prove to the local office they have an entitlement to or are in need of income support, the fact they have obtained a bit of work will not affect their entitlement.

Photo of Marie MoloneyMarie Moloney (Labour)
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I appreciate this but it is very difficult to administer. PAYE workers know when they are due to work but other people might get a phone call in the evening to tell them go to work the following day and they do not have time to inform the local social welfare office. It is very difficult to administer.

Ms Mary Kennedy:

A self-employed person will go to the local social welfare office and state he or she has not worked for a very long time or, if he or she has worked, the income is so low as to be insufficient to support his or her needs. On the basis of this information one will qualify or not for a jobseeker's allowance payment. If over time one's business increases and improves and one returns to being able to sustain oneself, one should tell the local office one's income is no longer at a level which requires State support.

Photo of Marie MoloneyMarie Moloney (Labour)
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Is Ms Kennedy stating if someone got a day's work, he or she does not have to inform the Department?

Ms Mary Kennedy:

We are complicating the issue.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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Is this with regard to casual dockets?

Ms Mary Kennedy:

Yes.

Photo of Marie MoloneyMarie Moloney (Labour)
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They are for PAYE workers and not for self-employed workers. We are discussing self-employed people drawing jobseeker's allowance.

Ms Mary Kennedy:

I do not work in a local office and I have never done that type of work. Someone with a very irregular income or an income so weak it is insufficient to meet his or her needs should establish entitlement to a payment.

Photo of Marie MoloneyMarie Moloney (Labour)
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If they do not inform the Department and they are caught working, the penalty will be quite harsh.

Ms Mary Kennedy:

It is important to remember the means of a PAYE worker's spouse, civil partner or cohabitant is assessed with regard to jobseeker's allowance. It is not only self-employed people whose income is assessed.

Photo of Marie MoloneyMarie Moloney (Labour)
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I appreciate this but let us be realistic. A PAYE worker can draw on his or her benefit and it is not means-tested. Very few PAYE workers would not receive a short-term payment for a few days off or illness benefit. If it comes to it and they are out long-term and must go onto jobseeker's allowance, I know they are means-tested but I am speaking about short-term problems.

Photo of Ray ButlerRay Butler (Meath West, Fine Gael)
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Last week the Minister told me many self-employed people who can afford to do so pay through the nose for private insurance policies for sick pay and disability pay. Many involved in small businesses would not have a hope of paying it. We could examine this system and examine how the Department runs its system.

Ms Kennedy made a presentation and spoke about increasing the rate of jobseeker's benefit by 15% to 16% in addition to core pension, and she also mentioned 17.3% for the entire package. We know this, but the recommendation of the report is to increase the class S stamp from 4% to 5.5%. It is not about the big figures because self-employed people cannot cope with them at present and we know this; it is about the report's findings and recommendations. It recommends sick pay, disability pay and a contributory pension for 5.5%. We want various groups, including ISME, to come on board. The Minister told me last week we do not want to introduce it all in one go, but that it could be introduced in stages of 0.25% over a period of time as the economy improves. We have got bogged down in the system of the Department of Social Protection with regard to self-employed people and nothing is happening. I do not want us to leave this meeting thinking about astronomical figures. We want to push the recommendations of the report to the Government to be included in the next budget and get something done for the self-employed.

There is much confusion with regard to the stamps of self-employed people. I paid an S class stamp for 24 years when I was self-employed. I did not know what it entitled me to because no information is distributed. I would like to see Revenue or the Department of Social Protection tell people what they are paying into and their entitlements. When I lost my business I was a local councillor and I was living on €302 a week to feed a family of four and try to pay my mortgage. I sought family income supplement because I thought I was entitled to it because I was working as a local authority member and paying a stamp through my wages. I could have been told in Longford on day one I was not entitled to it. There was not a piece of cheese to put in the mousetrap to feed the mouse in the house never mind feed the children and pay the mortgage. This continued for 24 weeks, and two weeks before Christmas a letter arrived to tell us we were entitled to nothing. One can imagine the Christmas we had.

I can see where Deputy Bannon is coming from with regard to suicide and self-employed people because I saw many dark days in my household. This is why I am so passionate. People hear me go on about the self-employed and fighting this corner with the Minister. Every time I see the Minister she runs to the far side of the room from me. I am so passionate because I do not want to see what happened to me happen to another self-employed person ever again. As long as I am in Dáil Éireann I will push this as far as I possibly can.

Photo of James BannonJames Bannon (Longford-Westmeath, Fine Gael)
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It is all about exploring other ways. Has the Department examined what happens in other countries? Insurance companies in this country look after their clients in such a way they are covered for Revenue audits which can cost up to €10,000. Perhaps the insurance for a business which employs people should include a built-in safeguard in the eventuality of collapse. This should be explored.

Photo of Marie MoloneyMarie Moloney (Labour)
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Once a self-employed person accesses jobseeker's allowance he or she cannot get a credited stamp so there is a gap in their contributions for pension purposes. What cost would there be in allowing these people put up a credited stamp? I cannot understand why they cannot do so.

2:10 pm

Ms Mary Kennedy:

I will respond to Senator Moloney's questions first. It is true that there is no facility to award credits to a self-employed person. A self-employed person gets 52 contributions for his or her year and there are no weeks that one can claw back or that kind of thing. However, an employed person only gets contributions for the weeks they work. They get a credit to maintain his or her record for any weeks that he or she might have been sick or not in employment. It is not exactly a case of comparing like with like. If a self-employed person earns more than €5,000 during the course of the year and makes a payment in respect of that, he or she will receive 52 contributions for that year. That is one of the reasons credits were not available to the self-employed. We are aware that it is a gap in the system. It is something that the advisory group report stated we must examine, and we will be looking at it. I cannot say at this point what the conclusion will be after a full examination on foot of the advisory group's report. Obviously, we are aware of the matter because it has become more of an issue in recent years due to people being out of employment.

Credits maintain a person's social insurance record and one has the option of becoming a voluntary contributor. I appreciate that costs money but the option to become a voluntary contributor is available to anybody who ceases to be in insurable employment or insurable self-employment and, in that way, to maintain one's social insurance record. This area was highlighted in the report as a shortcoming regarding the self-employed and it is something that we must review. We are examining the matter on an ongoing basis. The self-employed have specific issues. Again, no more than the other benefits the report found they did not require, it is something we must examine because different situations apply to the self-employed compared with employees.

Photo of Marie MoloneyMarie Moloney (Labour)
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Can the Department be asked to allow the self-employed to make credited contributions?

Ms Mary Kennedy:

A credit maintains an entitlement to a benefit. For example, in order to be entitled to a contributory State pension, one must have 520 paid contributions. The credited contributions will also maintain one's entitlement.

Ms Mary Kennedy:

That is the cost to the Social Insurance Fund of credits.

Photo of Marie MoloneyMarie Moloney (Labour)
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Is that not discrimination? Other people can sign on or draw illness benefit but still receive a credited contribution.

Ms Mary Kennedy:

Yes.

Photo of Marie MoloneyMarie Moloney (Labour)
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People can sign for credited contributions once a year. If they do so, they will get a year's worth of contributions.

Ms Mary Kennedy:

That is the way it applies to employees at present and we have acknowledged the provision. We have also acknowledged that there is an issue in regard to credits for self-employed people. The Senator must remember that credits are a very valuable commodity.

Photo of Marie MoloneyMarie Moloney (Labour)
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I appreciate that.

Ms Mary Kennedy:

As has been found by the actuarial review, the self-employed get incredibly good value for their contributions at present.

Photo of James BannonJames Bannon (Longford-Westmeath, Fine Gael)
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Can they buy it back?

Ms Mary Kennedy:

No.

Photo of Marie MoloneyMarie Moloney (Labour)
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That provision is gone a long time.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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Did the advisory group examine all of those matters? If stamps could be paid for jobseeker's benefit, for example, what percentage would that entail?

Ms Mary Kennedy:

The advisory group report or the actuarial review of the Social Insurance Fund-----

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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Either.

Ms Mary Kennedy:

The actuarial review of the Social Insurance Fund suggested that if one wanted to provide jobseeker's benefit, in addition to the core State pension, a 16% contribution would be required. For the combined State pension, plus jobseeker's benefit and invalidity pension, it would mean a 17.3% contribution.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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Is that not jumping to a figure that the self-employed should pay for the pension and adding all of that on just to get jobseeker's benefit? At present they pay 4% for the State pension and surely it should not take another 11% to provide for jobseeker's benefit.

Ms Mary Kennedy:

The point made by the actuarial review was that the self-employed are getting very good value for their 4% and the correct level they should be paying for their State pension, on an actuarial basis, is 15%. It said that the jobseeker's benefit would cost an extra 1% on top of the 15%, not 11%. It said the self-employed should be paying 15% for the long-term benefits they receive and it suggested a rate of 16% to provide for jobseeker's benefit. The review further stated that to fund the State pension, plus jobseeker's benefit, plus invalidity pension, the rate of contribution would be 17.3%.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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Did the advisory group examine the matter?

Ms Mary Kennedy:

What the advisory group looked at was not so much what the cost should be. It looked at the need to provide jobseeker's benefit for the self-employed and having examined the statistics, it found that 85% of the self-employed who applied for jobseeker's allowance were successful. It felt that the income support need was being met by jobseeker's allowance.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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All right.

Ms Mary Kennedy:

The advisory group did not carry out costings as such. The group felt that there was a need to provide the support of the invalidity pension and partial capacity benefit to the self-employed. It had regard to the findings of the actuarial review; that is where the figure comes from. The group took into account the findings of the actuarial review and came up with an additional cost of 1.5% for invalidity.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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All right.

Ms Mary Kennedy:

Deputy Butler mentioned the family income supplement which is something else that is not available to the self-employed. The benefit is provided to encourage people to stay in low-paid employment. In terms of applying a family income supplement type scheme to the self-employed, issues such as the income the person has and control arise. All of those issues around providing such supports to the self-employed arise.

Photo of James BannonJames Bannon (Longford-Westmeath, Fine Gael)
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What about comparisons with self-employed systems in other jurisdictions across the world?

Ms Mary Kennedy:

I meant to come back to the Deputy on the matter. The advisory group report mentioned systems in other countries for the self-employed. In anything that we do, we always have regard to what applies in other countries when examining any change in any scheme. Obviously, if a country has already done something or is providing a benefit, we examine how such mechanisms work in other countries and then see how the scheme might apply for us.

Photo of Ray ButlerRay Butler (Meath West, Fine Gael)
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Ms Kennedy mentioned the value that self-employed persons receive a number of times. Let us look at the value that the self-employed person gives. He or she employs people, pays income tax and PRSI and once a person's name is over the door, he or she is hit with bills for everything. It should be the opposite. It should be the value that the self-employed bring to the economy. At the end of the day, if we do not put in infrastructure and provide a safety net, why would a person bother being self-employed? If we want the economy to move forward, we need a system in place as the country comes out recession. If a person takes a gamble and sets up a business, employs people and pays taxes to the State, then the State should provide help if things go wrong. We need a proper social protection system for the future.

Photo of Joanna TuffyJoanna Tuffy (Dublin Mid West, Labour)
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I thank Ms Kennedy and Ms Mooney for their attendance and I thank the members for their contributions.

The joint committee adjourned at 2.50 p.m. until 1 p.m. on Wednesday, 27 November 2013.