Mary Hanafin (Dún Laoghaire, Fianna Fail)

The PRSI system is based on the contributory and solidarity principles. The contributory principle ensures there is a direct link between the contributions paid and the range of benefits and pensions to which the person is entitled. The solidarity principle relates to the redistributive nature of the system which ensures supports are provided to more vulnerable workers.

Current estimates indicate that the abolition of the PRSI ceiling would yield approximately €119.5 million additional contribution income in a full year.

Under the PRSI system social insurance contributions are compulsorily payable by employers, employees and self-employed workers. With regard to employees' contributions the amount payable is determined by reference to reckonable earnings in a weekly period, and is subject to a range of thresholds and an annual ceiling. Approximately 76% of workers pay PRSI Class A and Class H at the rate of 4% and accrue entitlement to a range of benefits and pensions under various social insurance schemes.

The PRSI exemption on low earnings stands at €352 per week. People with incomes at that level or below are exempt from PRSI. Once a person earns above this level their total income, up to the annual ceiling, is chargeable to PRSI but they are entitled to a PRSI-free allowance of €127 per week.

The employee PRSI ceiling is reviewed annually in accordance with the legislative stipulations of the Social Welfare (Consolidation) Act 2005. In the 2009 budget the employee ceiling was increased by €1,300 from €50,700 to €52,000; and in the supplementary budget a more substantial increase brought it to €75,036.

The Actuarial Review of the Social Insurance Fund 2005 report, published in 2007, found that paying social insurance contributions represents very good value for money in almost all circumstances. In particular, the report stated that those on lower incomes fare considerably better than those on higher incomes, with persons earning less than the gross average industrial wage paying 35% of the contributions and receiving 66% of the benefits.

This finding demonstrates the solidarity principle of the social insurance scheme whereby contributions paid by insured persons are not actuarially linked to benefits but are instead redistributed to support contributors who are more vulnerable. It is an expression of solidarity between both earning groups and generations.

Any future changes to the PRSI ceiling would have to be considered in a budgetary context.

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