1 Social insurance and the self-employed 1 Who pays self-employed Pay Related Social Insurance (PRSI)? All self-employed people aged 16 or over, and under pensionable age (currently 66) with reckonable income or emoluments of 5,000 or more per year, are liable for compulsory social insurance at Class S. This includes: professional people (for example, doctors, dentists, solicitors, etc.) sole traders, people in business on their own or in partnership, farmers, religious, contractors, sub-contractors people with income from investments, rents or maintenance payments employees who are also self-employed in a trade or profession company directors, and others, who pay their tax through the PAYE system but who are not regarded as employees for social insurance purposes certain artists and childminders who have been made exempt from income tax by the Revenue Commissioners 2 Who is excluded from paying self-employed PRSI? Certain categories of people are excluded from paying Class S PRSI. The following are some examples: relatives of the self-employed who help out in the running of the business, but who are not business partners people with reckonable annual income of less than 5,000 people who pay contributions at Class A and whose only self-employed income is unearned income such as interest or rent people in receipt of an occupational pension whose only self-employed income is unearned income such as interest or rent people in receipt of pre-retirement allowance on an ongoing basis people not ordinarily resident in the State with unearned income
2 3 How much do the self-employed contribute compared to employees? Self-employed workers are liable for PRSI at the Class S rate of 4%. Employees who are liable for PRSI at Class A rate pay 4%. In addition their employers make a PRSI contribution of 10.75% in respect of their employees, 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 is 4.25%) Make-up of Social Insurance Fund (SIF) income Employed v Self- Employed Outturn Outturn SIF income from contributions made up of: Contributions from employed 6,377,415 7,192,180 Contributions from self-employed 330, ,342 Total SIF income from contributions 6,708,018 7,540,522 Contributions from self-employed as % of total contributions 4.9% 4.6% Note: Contributions from self-employed Directors are estimated at 1.97% of Schedule E contributions following apportionment exercise completed in Aug 2009, in respect of 2007 receipts data. 4 Why do self-employed people pay a lower rate of PRSI? All workers, both employed and self-employed, are obliged to pay PRSI contributions as a percentage of their personal reckonable income. These contributions provide entitlement to a range of contingency-based payments under various social insurance schemes, including pensions.
3 The range of benefits and pensions to which different groups of workers may establish entitlement reflects the risks associated with the nature of their work. This in turn reflects the rate of contribution payable. Self-employed persons are liable for PRSI at the Class S rate of 4% and are consequently eligible for a narrower range of benefits than general employees who, together with their employers, pay a total social insurance contribution of 14.75%, under the full-rate PRSI Class A. Self-employed workers are not insured against short-term benefits such as illness and jobseeker s payments these are only available to persons covered by PRSI Classes A, E, H and P. This reflects the need for coverage for various contingencies, the rate of contributions that self-employed persons pay, the practicalities of administering and controlling access to short-term payments and the annualised system of contributions that these same persons enjoy. A system of separate arrangements for employed and self-employed workers within a social insurance context is common in other European social protection systems. 5 What benefits do self-employed contributors get in return, and how do these compare to employed contributors benefits? PRSI Class S provides cover for: Widow s, widower s or surviving civil partner s (contributory) pension Guardian s payment (contributory) State pension (contributory) Maternity benefit Adoptive benefit Bereavement grant PRSI Class A provides cover for: Jobseeker s benefit Illness benefit Health and safety benefit Maternity benefit Adoptive benefit Invalidity pension Widow s, widower s or surviving civil partner s (contributory) pension
4 Guardian s payment (contributory) State pension (transition) State pension (contributory) Bereavement grant Treatment benefit Occupational injuries benefit Carer s benefit 6 What return on investment do self-employed contributors get out of PRSI? The 2005 Actuarial Review of the Social Insurance Fund found that paying social insurance represents very good value for money in almost all circumstances. In particular, the Fund favours the self-employed over the employed when both employer and employee contributions are included in respect of the employed person. This analysis demonstrates that, despite the fact that they are eligible for a narrower range of benefits, self-employed persons gain relatively more from the Social Insurance Fund than employees. The state pension (contributory), in particular, is a very valuable benefit. The current maximum rate of state pension (contributory) is per week or almost 12,000 per year; this does not include the value of (means-tested) increases for qualified adults, or other additional benefits which recipients might also receive. The market cost of an inflation-linked annuity with 12,000 a year in initial benefits is in excess of 300,000. This value is without any associated survivors benefits, which are available with the state pension. It should be noted that the state pension (contributory) increased in excess of inflation and earnings growth in the period up to 2010 while annuities offer CPI-linked increases at best. It may be noted that, in 2008, 90% of self-employed contributors had incomes of less than 50,000 meaning that in building entitlement to a state pension each of these contributors will have paid less than 1,500 substantially less. per annum in contributions in most cases
5 7 Can self-employed people qualify for jobseeker s benefit? Self-employed people pay PRSI at Class S, which does not provide cover for jobseeker s benefit. However, if they worked as an employee in the last four years, they may have paid enough PRSI at Class A, H or P to qualify for jobseeker s benefit and they should apply to their Social Welfare Local Office for this payment. They may be entitled to jobseeker s benefit in respect of days of unemployment, provided they satisfy the scheme conditions. Their level of commitment to the business for the days they are not working is taken into consideration. For example, if they had to spend a day doing accounts or buying materials this would be considered a day of employment. 8 How much would self-employed workers have to contribute to get similar benefits to employed workers? Self-employed contributions are charged at the rate of 4% of reckonable income over 5,000 or 500 per annum whichever is the greater. Class A employees who qualify for all benefits pay PRSI at the rate of 4%. In addition, their employers make a PRSI contribution of 10.75% in respect of their employees, resulting in the payment of a combined 14.75% rate per employee under full-rate PRSI Class A. earning less than 356 per week, the rate of employer s PRSI is 4.25%). (For employees Any changes to the PRSI system to extend the full range of social insurance benefits, including jobseeker s benefit, to self-employed persons 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. Part of the scope of the Actuarial Review of the Social Insurance Fund as at 31 December 2010 was to project the long-term cost implications to the Social Insurance Fund and the break-even contribution rates (employer, employee and self-employed) 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 has commenced its examination of the issues involved in
6 providing social insurance cover for self-employed persons in order to establish whether or not such cover is technically feasible and financially sustainable. A detailed examination of the findings of the Actuarial Review of the Social Insurance Fund and the Report of the Advisory Group on Tax and Social Welfare will assist in determining the rate of contribution that would be required if it is decided that it is feasible to extend cover for short term benefits to the self-employed. 9 What other supports are available for the self-employed? As well as the benefits mentioned at 4 above, self-employed people who are unemployed or who have an illness or disability may be entitled to a means-tested payment such as jobseeker s allowance, farm assist, disability allowance or supplementary welfare allowance. Where a self-employed person meets the appropriate qualifying conditions and satisfies the relevant means test, they are entitled to these payments in the same way as people who have only ever been employees. Self-employed people who are no longer earning sufficient income for their work may continue to work and qualify for jobseeker s allowance, provided they satisfy the means test and other qualifying conditions. Anybody, self-employed or otherwise, who has urgent income support needs can apply for the means-tested supplementary welfare allowance. Over 95% of applications for this allowance are decided on, and paid, within a week. 10 How is the means test for jobseeker s allowance applied to self-employed people? A self-employed person can apply for jobseeker s allowance if they have become unemployed as a result of their business closing down or if the amount of work they are getting has reduced so much that it no longer provides them with sufficient income. Staff in the Department have also been made aware that a self-employed customer should never be advised to de-register as self employed, as this would negatively impact on their chances of getting future self-employment.
7 In most such cases, a Social Welfare inspector will interview them to determine their means. Legislation provides that a person s income in the coming 12 months is the basis of their means. However, while the income from the previous 12 months is used to estimate the person s likely future income, it is not simply assumed that the same level of income will be generated in the succeeding year, and account is taken of the potential for significant downward or upward variations in income. Social Welfare Inspectors have been advised that they should apply their knowledge of local economic conditions to arrive at a fair assessment of a person s income from selfemployment in the coming 12 months, and the Department has compiled a handbook of typical questions that inspectors might find useful during the interview stage of certain investigations. These are intended to help an inspector arrive at an informed opinion of the actual trading position and the level of income of the business or enterprise. If a self-employed person has ceased their self-employment, and has no reasonable prospect of deriving any income from this source in the coming 12 months, they should not be assessed with means from self-employment. Assessment of means derived from self-employment for jobseeker s allowance purposes A customer s means from self employment are taken to be the estimated net income that they will earn from the business or enterprise, including farming, in the following 12 months. Estimated annual net income is then divided by 52, added to any assessment of weekly means from other source/s (where applicable), and the total weekly means assessment is deducted from the relevant maximum weekly rate of payment appropriate to the family size. Estimated annual net income is comprised of gross income less all legitimate (and where applicable, vouched) business expenses. There is no exhaustive list of expenses which may be taken into account but each must be seen to be exclusively related to the business enterprise. Where a specified expense includes
8 both business and private use, e.g. transport or utility costs, the Social Welfare Inspector will apportion an appropriate percentage of the expense to the business and deduct this amount from gross estimated income. Where there are no known or expected changes in circumstances, the net income received in the previous 12 months is generally used as an indication of the level of business and estimated net profit for the following 12 months. If the income and expenditure accounts for the previous 12 months demonstrate an incremental and sustained downturn over a period of time, the projected net income for the succeeding 12 months takes account of the diminishing trade. Accordingly the estimated net income, and the consequent means assessment, is reduced on a proportionate basis. (Similarly, account is taken of any expected increase in business, although in such circumstances an early review of the means assessment would be likely). Where it is established that the business has ceased trading, no means are assessed on an ongoing basis from that business. Where a self employed person s situation changes after they have made an initial claim for jobseeker s allowance, they can apply to have their means reviewed. In addition, it is open to the individual, if he or she is dissatisfied with the means assessed, to make an appeal to the Social Welfare Appeals Office. 11 What are voluntary contributions and what rate of voluntary contributions can self-employed people pay? Voluntary contributions are Pay Related Social Insurance (PRSI) contributions you can opt to pay if you are between the age of 16 and 66 and are no longer covered by compulsory PRSI by way of insurable employment, self-employment or credited contributions. Payment of voluntary contributions can help maintain or improve your contributory pension entitlements. In order to be admitted as a voluntary contributor you must: have at least 260 weeks* PRSI paid under compulsory PRSI in either employment or self-employment,
9 apply within 12 months after the end of the contribution year during which you last paid compulsory PRSI or had a credited contribution ('credit'), and agree to pay voluntary contributions from the start of the contribution week after the week in which you last paid compulsory PRSI or had a credited contribution. *If you are applying to become a voluntary contributor: on or after 6 April 2013, you will need 364 weeks PRSI paid, on or after 6 April 2014, you will need 468 weeks PRSI paid or on or after 6 April 2015, you will need 520 weeks PRSI paid. The rate of voluntary contributions payable is always determined by the last rate of PRSI contribution paid by a person. There are three different rates of voluntary contributions. High Rate: This rate is payable if the last PRSI contribution paid was at Class A, E or H. The amount payable in each contribution year is currently 6.6% of reckonable income in the preceding contribution year. The minimum annual payment is Low Rate: This rate is payable if the last PRSI contribution paid was at Class B, C or D. The amount payable in each contribution year is currently 2.6% of reckonable income in the preceding contribution year. The minimum annual payment is Special Rate: This rate is payable if the last PRSI contribution paid was Class S self-employed. The amount payable is currently per year. 12 What cover will voluntary contributions provide? Voluntary contributions provide cover for long-term benefits only, such as contributory pensions. High rate voluntary contributions provide cover for: State pension (transition) State pension (contributory) Widow s, widower s or surviving civil partner s (contributory) pension Guardian s payment (contributory) Bereavement grant Low rate voluntary contributions provide cover for: Widow s, widower s or surviving civil partner s (contributory) pension Guardian s payment (contributory)
10 Bereavement grant Special rate voluntary contributions (those paid be people who were previously selfemployed and paying Class S PRSI) provide cover for: State pension (contributory) Widow s, widower s or surviving civil partner s (contributory) pension Guardian s payment (contributory) Bereavement grant 13 What is the purpose of the Social Insurance Fund Actuarial Review and what will it tell us? The Social Welfare (Consolidation) Act, 2005 makes provision for the carrying out of actuarial reviews of the Fund, as follows: "10 - (1) The Minister shall cause (a) actuarial reviews to be made to the financial condition of the Social Insurance Fund by such persons as the Minister may decide for the purpose of determining the extent to which the Fund may be expected, in the longer term, to meet the demands in respect of payment of benefits and other payments, having regard, in particular, to the adequacy or otherwise of the contributions to support benefits and other payments and such other matters as the Minister considers to be relevant as affecting the current and future financial condition of the fund, The review informs both short- to medium-term and long-term policy development in relation to the Social Insurance Fund generally. The review will provide information in relation to: the short-fall in the Social Insurance Fund the level of Exchequer subvention required to maintain current payment levels the value for money provided for the various contributors to the fund projections reflecting various policy options Part of the scope of the Actuarial Review of the Social Insurance Fund as at 31 December 2010 was 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. This Report has just been published and is available on
A guide on pension provision and the types of pension plans you can use to save for your retirement www.pensionsauthority.ie The Pensions Authority Verschoyle House 28/30 Lower Mount Street Dublin 2 Tel:
Your social security rights in Ireland A guide for EU Citizens from the Department of Social and Family Affairs Introduction This guide gives information on the social welfare payments available in Ireland
KEY GUIDE Financial protection for you and your family Protecting what matters most Life and health insurance protection underpins most good financial planning. These types of insurance can ensure that
PSEU Income Protection Plan Member s Explanatory Booklet Table of Contents Introduction... 3 Protecting your Income... 3 How the Income Protection Plan works... 4 Questions and answers... 7 Contact details...
For commercial customers and their advisers only Group Income Protection Technical Guide Reference BGR/4019/OCT12 Contents Page Its aims Employers your commitment Risk factors How does the policy work?
Understanding Superannuation Client Fact Sheet July 2012 Superannuation is an investment vehicle designed to assist Australians save for retirement. The Federal Government encourages saving through superannuation
Key Features of the BFS Protect Policy A fresh look at Income Protection A fresh look at Income Protection 2 This is an important document which you should read along with your Personal Illustration. The
Income Continuance Plans A review of the position and regulation of income continuance plans Prepared: Watson Wyatt LLP, Insurance and Benefits consultants And Matheson Ormsby Prentice, Solicitors 19 June
Personal Income Protection support for the unexpected A Guide to Personal Income Protection Introducing ROYAL LONDON Ever since we started as a Friendly Society over 150 years ago, at Royal London we ve
Voluntary Income Protection Plan Explanatory booklet December, 2011 This booklet is produced by Friends First and provides an overview of the benefits for members of the Voluntary Income Protection Plan
Part 30 Occupational Pension Schemes, Retirement Annuities, Purchased Life Annuities and Certain Pensions CHAPTER 1 Occupational pension schemes 770 Interpretation and supplemental (Chapter 1) 771 Meaning
Income Protection A Guide to Claims for Employers Irish Life Corporate Business First Class Providers of Income Protection An income if an employee cannot work as a result of illness or injury. 2 Contents
GROUP INCOME PROTECTION PROACTIVE PROTECTION PROVIDED BY METLIFE POLICY technical guide This document is a guide to the features, benefits, risks and limitations of the policy, including how the policy
STAYING PUT Arrangements for Care Leavers aged 18 and above to stay on with their former foster carers DfE, DWP and HMRC Guidance May 2013 1 Contents Aim... 3 Introduction... 4 Terminology... 4 Department
Verschoyle House 28/30 Lower Mount Street Dublin 2 Tel 01 613 1900 Fax 01 631 8602 Email firstname.lastname@example.org www.pensionsboard.ie The Pensions Board has prepared this booklet to help people understand
Annuities 1 Annuities Table of Contents Chapter One Introduction to Annuities and Annuity Buyers Important Lesson Points Introduction Demographics of Non-Qualified Annuity Purchasers The Annuity Concept
GROUP INCOME PROTECTION PROACTIVE PROTECTION PROVIDED BY METLIFE POLICY TERMS & CONDITIONS 1 CONTENTS 1. The policy 2 2. Definitions 3 3. Minimum requirements for the policy 7 4. Eligible employees and
Child Support Guidelines 1999 Edition TABLE OF CONTENTS I. INTRODUCTION... 1 II. USE OF GUIDELINES... 2 III. DETERMINATION OF CHILD SUPPORT AWARDS... 3 A. Income... 3 1. Definition... 3 2. Gross Income...
Factsheet 19 April 2015 Inside this factsheet Who is eligible for the, a contribution based benefit for people of age Information about the current ages 65 for men and 62 ½ for women How to claim Information
An Adviser s Guide to Pensions 1 An Adviser s Guide to Pensions Contents: Section 1: Personal Pensions 1.1 Eligibility 1.2 Maximum Benefits 1.3 Contributions & Tax Relief 1.4 Death Benefits 1.5 Retirement
Risk Protection Plan Product Disclosure Statement Commencement date 1 June 2011 Glenelg, SA Important information Contents Who might need the Risk Protection Plan? 3 The Risk Protection Plan at a glance
1 Beyond the benefit trap. Disability pensions and incentives for work Erik Samoy (PhD) Research department of the Flemish Fund for the Social Integration of People with Disabilities July 2005 Study commissioned
your retirement options This report has been prepared by Beaumont Robinson July 2011 Introduction 2 Benefit Crystallisation Events 3 Protected Rights 4 Pension Commencement Lump Sum 5 Lifetime Annuities
Child Tax Credit and Working Tax Credit A guide CHILD TAX CREDIT AND WORKING TAX CREDIT WTC2 Contents Introduction 1 Child Tax Credit 4 Working Tax Credit 7 Income and capital 21 How is my award worked
www.mtaasuper.com.au Phone: 1300 362 415 / Fax: 1300 365 142 Insurance Dated 1 March 2012 The information in this document forms part of the Product Disclosure Statement for MTAA Super dated 1 March 2012
Guide to buying annuities Summary of the key points contained in this disclosure document Before you purchase your annuity contract, make sure that you read and understand this guide. While reading this
Old-Age, Survivors, and Disability Insurance In 1996, 43.7 million persons received monthly benefits The OASDI program which for most Americans means Social Security is the largest income-maintenance program