Wednesday, 9 November 2011
Social Welfare Code
I welcome the Minister of State again. He has been here two weeks in a row. I call on the Minister for Social Protection to justify how self-employed PRSI contributions can be taken from an individual while that individual, a self-employed person, is entitled to nothing and to no financial contribution when injured or ill through no fault of their own.
Self-employed people in Ireland pay an S class social insurance payment as mandatory. At the moment, the payment stands at 4% of earnings of all reckonable income above €5,000 or €253, whichever is greater. This contribution currently entitles the payee to class S benefits, including widow's, widower's or surviving civil partner's pension contributions; guardian payments contributory; State pension contributory; maternity benefit; adoptive benefit; and bereavement grant. Unlike most other classes of social insurance payments, class S PRSI does not provide cover for any other schemes or benefits such as jobseeker's, occupational injuries or illness benefits. The Minister of State knows that in the current downturn self-employed people, and not just their employees, have suffered high levels of unemployment. They have paid not just their own but PRSI but employers' too. The situation seems to be totally unjust.
Many people have raised this issue with me and have asked why they are the fall guys. The rules governing PRSI contributions by the self-employed, which prevent access to State support, are causing unnecessary financial hardship for some families and need to be urgently reviewed. In addition, if we wish to foster and encourage enterprise and self-employment in Ireland we must seriously address this issue, something all members of the Government are trying to do.
It is absolute madness to expect self-employed people to pay a compulsory social insurance payment which provides no cover whatsoever if they are injured or become ill through no fault of their own. Many self-employed people now find themselves without work through illness and injury and are not covered by PRSI as a result of the rules governing contributions made by the self-employed.
I have met at least three people in my office about this issue. The livelihood of one man is at risk and he brought the detail of his situation to me. We need to explore the UK model which allows self-employed people to become employees in certain situations and pay PRSI contributions which offer protection when individuals become sick or injured and cannot work. It is a reasonable proposal.
One such example where this situation is causing serious hardship for people and their families is the case of a self-employed man who has paid taxes and PRSI since 2000. When he was injured in a road traffic accident, having been rear-ended by a drunk driver, he was shocked to discover he was not entitled to any injury or sickness payment while incapacitated and unable to work in July and August 2010 or following corrective surgery during July, August and September 2011.
In order to meet his financial obligations and living expenses on a daily basis he has had to arrange an overdraft with his bank, something which should have been paid for by sickness benefit. He has told me that while he could take out private insurance in the future at a cost of €300 for an annual premium providing benefits of €500 per week in the case of not being able to work due to injury, he cannot afford to pay for State and private insurance and illness is still not covered by either. If he had invested a small sum of money in private insurance rather than in the State he would have benefited from injury cover.
Self-employed people cannot continue to bear the burden whereby they are entitled to less from their social insurance contributions than their employees. It is strange that an employer, who is the multiplier and has the responsibility to pay employer and personal contributions, is entitled to nothing if he or she falls ill or becomes injured, especially when a self-employed person pays more in contributions than employees. The situation is grossly unfair and cannot be allowed to continue in a State which is crying out for people to become self-employed to help drive recovery.
I ask the Minister, through the Minister of State, to justify how the PRSI contributions of the self-employed can be paid, yet those who pay it are entitled to nothing when they become ill or are injured through no fault of their own. I look forward to the response.
Access to certain social insurance payments, which are based on PRSI contributions, differ between employees and the self-employed. While employees and the self-employed are liable to PRSI at the rate of 4%, employers also make a PRSI contribution of 10.75% in respect of employees, bringing the PRSI payment in respect of employees to a combined 14.75% rate per employee under the full class A rate. As a result, ordinary employees can build entitlement towards the full range of social welfare benefits based on the higher level of contribution. Class S self-employed contributions provide cover for long-term benefits, such as the State contributory pension, widow's or widower's pension or surviving civil partner's contributory pension.
I am keenly aware of the very difficult financial position self-employed people are now in. We have all heard cases in our clinics and advice centres, in particular small business owners who find themselves in a very precarious financial position. However, we have to strike a balance between contributions made and benefits received. PRSI coverage is related to the risks associated with employment or self-employment, the annualised system of contributions for self-employed people and the practicalities of administering and controlling access to short-term payment for self-employed people.
A system of separate arrangements for employed and self-employed workers within the social insurance context, such as this, is common in other European social protection systems. In this context, it should be noted that self-employed workers generally achieve better value for money by paying social insurance compared with employees. The 2005 actuarial review of the social insurance fund found it favours the self-employed over the employed when employer and employee contributions are included in respect of the employed person.
For example, a male married self-employed contributor earning gross average industrial wages had a value for money index of 10.3 compared with an index of 3.1 for an equivalent employee. In basic terms this means that, with regard to benefits, the self-employed contributor can expect to receive over ten times what he or she contributes to the social insurance fund compared to the employee who, even with access to a broader range of benefits, only gets three times what he or she and his or her employer contributes.
The analysis demonstrates that, despite the fact that they are eligible for a narrower range of benefits, self-employed persons can gain substantially more from the fund than employees. It should be noted that the State contributory pension increased in excess of inflation and earnings growth in the period up to 2010 while annuities offer CPI linked increases at best. The market cost of an inflation linked annuity with €12,000 a year in initial benefits is in excess of €300,000, without any associated survivor's benefits.
Any changes to the PRSI system in order to provide access to short-term benefits such as social insurance illness-related benefits would have significant financial implications and would have to be considered in the context of a much more significant rise in the rate of contribution payable. The Minister for Social Protection, Deputy Joan Burton, established the advisory group on tax and social welfare earlier this year to meet the commitment made in the programme for Government. It will examine and report on issues involved in providing social insurance cover for self-employed persons in order to establish whether it is technically feasible and financially sustainable.
I thank the Minister of State. A large part of his response is the same as I outlined, in terms of long-term benefits.
I referred to illness and injury. Why is coverage not available for such cases, even at a greater cost? Can the Minister of State give me a commitment that the question I put to him will be submitted to the advisory group on tax and social welfare in order that it is considered, with a view to ensuring that anybody who finds himself or herself in such a situation has the right to buy benefits for illness and injury, albeit at a higher cost?
I am happy to make a submission in light of the concerns raised. The State has to be mindful of the cost of implementing such a scheme, in terms of deriving short-term benefits. I take the point made on the advisory group on tax and social welfare. I will refer the matter to the Minister, Deputy Burton. I respectfully suggest the Senator engage with the Minister. The Senator referred to a specific case in her constituency.