Written answers

Tuesday, 7 November 2017

Department of Employment Affairs and Social Protection

Social Welfare Code Reform

Photo of Robert TroyRobert Troy (Longford-Westmeath, Fianna Fail)
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1252. To ask the Minister for Employment Affairs and Social Protection the timeframe for changes to the social welfare system which would provide greater rights to self-employed persons; and if she will make a statement on the matter. [46624/17]

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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1284. To ask the Minister for Employment Affairs and Social Protection the extent to which the self-employed can qualify for various social welfare supports now and in the future; and if she will make a statement on the matter. [47117/17]

Photo of Regina DohertyRegina Doherty (Meath East, Fine Gael)
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I propose to take Questions Nos. 1252 and 1284 together.

The Government is committed to encouraging self-employment and entrepreneurship. This includes enhancing the position of the self-employed through a supportive tax regime and, very importantly, improving the level of PRSI based benefits available to self-employed people.

Self-employed people who earn €5,000 or more in a contribution year, are liable for PRSI at the class S rate of 4%, subject to a minimum annual payment of €500. This provides them with access to the following benefits: State pension (contributory), widow’s, widower’s or surviving civil partner’s pension (contributory), guardian’s payment (contributory), maternity benefit, adoptive benefit and paternity benefit.

Since March 2017, the self-employed have access to the treatment benefit scheme which includes free eye and dental examinations, and contributions towards the cost of hearing aids. Treatment benefit entitlements were also extended from October 2017 so as to provide further dental and optical benefits.

Even more significantly, self-employed contributors will be eligible for the invalidity pension from December 2017. For the first time, this will give the self-employed access to the safety net of State income supports if they become permanently incapable of work as a result of an illness or disability without having to go through a means test. This is a real advance in the level of cover available to the self-employed.

The extension of additional social insurance cover for the self-employed to other benefits on a phased basis in future Budgets, is being considered. This will have to take account of the cost of providing such cover, including implications for the long-term financing of social insurance benefits generally. While the social insurance fund currently has a surplus, it faces significant financial challenges in the years ahead in order to ensure adequate and sustainable social insurance pensions and benefits for a growing and aging population.

The issue of extending additional social insurance benefits to the self-employed paying class S PRSI was considered in the Actuarial Review of the Social Insurance Fund (SIF) as at 31 December, 2015, which I published on 18 October 2017. The review, required by legislation, was carried out by independent consultants, KPMG. It examines the projected income and expenditure of the SIF over the course of the 55 year period from 2016 to 2071.

The review found that while the fund currently has a modest surplus of income over expenditure it will return to a small shortfall in 2020. The annual shortfalls are projected to increase from 2021 onwards over the medium to long term, as the aging of the population impacts. Projections indicate that, in the absence of further action to tackle the shortfall, the excess of expenditure over income of the fund will increase from €0.2 billion in 2020 to €3.3 billion by 2030 and to €22.2 billion by 2071. As referenced above self-employed workers will be eligible to apply for invalidity pension from December 2017 and the cost of this introduction has been factored into the actuarial review.

As part of the review the independent consultants were required to project the additional expenditure if invalidity pension and illness, jobseeker’s and carer’s benefits were extended to class S self-employed workers and the PRSI contribution rates required to provide these benefits on a revenue neutral basis.

The review found that the combined cost of introducing the invalidity, illness, jobseeker’s and carer’s benefits for class S contributions is estimated to be €118 million in 2018, rising steadily to €223 million in 2020. By 2025 the projected cost is €413 million and, over the period of the review the cost would rise to €1.3 billion in 2071.

The review indicates that, where these benefits are extended to the self-employed, the class S rate of PRSI contribution would need to increase substantially in order to ensure that the benefits are delivered in a revenue neutral manner. It estimates that when expenditure on the additional benefits is considered over the entire projection period, PRSI rates would need to increase by 94% under a scenario of no subvention from the exchequer. This is equivalent to an increase of the class S contribution rate from the current 4% rate to 7.8%.

This increased contribution is attributable only to the costs of extending these additional benefits to PRSI class S contributors. It does not take account of the value to class S contributors of access to the range of existing benefits, and in particular State pension (contributory).

The consultants estimated that the typical cost of State pension (contributory) on its own is of the order of 10% to 15%, depending on other factors including rate of average earnings and date of commencing paying PRSI. Adding in the other benefits referenced the total class S rate of contribution to ensure revenue neutrality would be of the order of 20% per annum.

The findings of the review will play an important role in informing the overall debate on policy developments in relation to the social insurance fund in the years ahead including the financial sustainability of the fund given the expected demographic challenges and consideration of extending the scope of benefits for workers generally, including the self-employed.

The actuarial review provides government with an evidence-led and timely opportunity to consider reforms as to how our social insurance system is financed, on which I intend to consult widely.

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