Written answers

Tuesday, 4 November 2014

Department of Social Protection

Social Insurance

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Kildare South, Fianna Fail)
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124. To ask the Minister for Social Protection if she is satisfied with the current operation of the PRSI system; if she will guarantee the current benefits arising from the payment of PRSI into the future; her plans to rectify the deficit in the Social Insurance Fund; and if she will make a statement on the matter. [41709/14]

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Social insurance contributions (PRSI) are paid into the Social Insurance Fund (SIF) which finances a broad range of payment benefits. The social insurance system is mandatory and insures nearly all workers and the self-employed for a range of contingencies such as old age, ill health, maternity and unemployment. The range of contingencies covered is dependent on the Class of PRSI paid.

Social insurance spending has traditionally been funded on a tripartite basis – with contributions coming from the Exchequer, employers and employees. Legally, the Exchequer is the residual financier of the Social Insurance Fund (SIF) and Exchequer contributions were the norm for over 40 years. The Revised Estimates provides for a subvention of €0.69 billion from voted expenditure to fund the deficit on the SIF in 2014.

One of my key priorities as Minister for Social Protection is to balance the books, in particular by starting to put the Social Insurance Fund on a sustainable footing. A core principle of sustainable social protection systems in advanced economies is that citizens receive benefits in proportion to their contributions.

The structural PRSI measures implemented in recent Budgets will have a positive and long-term impact on the funding of the SIF. These measures include increases in rates of contribution, the abolition of ceilings for charging PRSI, the abolition of relief from PRSI previously applied to employee pension contributions, the abolition of the PRSI-free allowance as well as the broadening of the base on which PRSI is charged through the abolition of exemptions. These revenue raising measures were accompanied by very extensive expenditure reducing measures including stricter contribution conditions for entitlement, reductions in duration of entitlement, removal of entitlement to concurrent social insurance payments, increases in pension age as well as major reductions in entitlements under the treatment benefits and redundancy payments schemes. The 2015 Budget Estimate has provided for the Exchequer Subvention to fall to €248 million in 2015.

The sustainability of the Social Insurance Fund is driven by:

i. Social Insurance Fund Income from PRSI receipts;

ii. Expenditure on SIF schemes – the main variables being demographic pressures relating to pensions and the Live Register.
Social Insurance Fund income peaked at over €8.1 billion in 2008. It fell to €6.7 billion by 2010. The 2015 Budget Estimate is forecasting that it will be €8.2 billion, exceeding the pre-crash value for the first time.

Arising from demographic pressures, expenditure on pensions is increasing by €200 million each year.

The Live Register rose from an average of 162,000 in 2007 to over 440,000 in 2010 and 2011. It has since fallen each year and is expected to average below 390,000 in 2014.

The Actuarial Review of the Social Insurance Fund as at 31 December, 2010, highlighted the growing deficit in the Fund and the prospect that it will, in the absence of measures to address the deficit, accelerate further in the future, driven primarily by pension costs. It is estimated that in excess of €900m additional provision will be required over the next 5 years to fund increases in the numbers of recipients of the State pension (contributory) scheme.

Based on macro-economic forecasts provided by the Department of Finance, it is expected that Social Insurance Fund income will continue to rise over the period 2016 to 2018 by an amount greater than the requirement for additional pension expenditure. Assuming current level of service (including no rate increases for pensioners and other recipients), the Social Insurance Fund will return to surplus in 2016. There has been no rate increases since the first Budget of 2009.

Throughout the crisis, this Government protected core welfare rates and maintained a massively strong social welfare safety net. The Programme for Government commitment is to retain core weekly social welfare rates of payment. This Government has successfully achieved this objective over the last four Budgets. In 2015 all existing welfare payments and supports will be maintained, there will be no reductions.

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