# Self-employed to get option of paying higher prsi to qualify for more benefits



## Brendan Burgess (9 Aug 2016)

*Self-employed to get option of paying more PRSI in order to access more benefits*

"Mr Varadkar wants to bring the system more into line with other countries in Europe, which have a more clearly defined link between the amounts paid to the State and the return for the employee."

It would be a great idea if the system was changed so that all prsi contributions went into a personal account and that benefits payable depended on the amount in that account. 

So someone who has worked for years, would get a higher pension than someone who has not worked. 

The self-employed who pay very little into the fund, would get a very small pension, or might not qualify at all. 

Brendan


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## Sarenco (9 Aug 2016)

Brendan Burgess said:


> The self-employed who pay very little into the fund, would get a very small pension, or might not qualify at all.



PAYE employees and the self-employed contribute to the social fund at exactly the same rate.  No difference whatsoever.

In addition, if a self-employed person has employees he or she will make a significantly higher contribution to the social fund on behalf of each such employee.

Should the rates at which PRSI is paid by employers and employees/the self-employed be rebalanced in a revenue neutral manner so that employers' PRSI is reduced and the rate paid by employees/the self-employed is increased?  I think you could make a good argument that it should be rebalanced on this basis.  In the US, for example, employers and employees/the self-employed pay social security at the same rate (6.2%) up to the relevant ceiling.

In any event, the self-employed can already purchase a (tax deductible) PHI policy which would appear to cover most of what is envisaged in Minister Varadkar's half-hearted proposal/kite.


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## Brendan Burgess (9 Aug 2016)

Sarenco said:


> In addition, if a self-employed person has employees he or she will make a significantly higher contribution to the social fund on behalf of each such employee.



That is a weird way of looking at it. 

An employee contributes 4% to the fund, and his employer, whether a company or self-employed, contributes 10.75% to the fund. So the fund benefits from a contribution of 14.75% for each employee. 

They get exactly 4 for each self-employed person. 

Think of it like this. Let's say that all employees became self-employed tomorrow. The fund would not be remotely adequate to fund the levels of pensions. 

Brendan


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## Sarenco (9 Aug 2016)

Brendan Burgess said:


> That is a weird way of looking at it.



I think it's weird to look at it any other way!

Yes, the fund gets a contribution of 14.75% per employee but only 4% is contributed by each employee - the balance is contributed by their employer (who could well be self-employed!).

Again, I'm not arguing that the balance between employer/employee contributions is appropriate - in my view both employer and employee should contribute equal amounts to the fund.  A self-employed person then could logically be expected to pay double the rate but only on half their net income (to equate to the contributions made by an employer/employee).



Brendan Burgess said:


> Think of it like this. Let's say that all employees became self-employed tomorrow. The fund would not be remotely adequate to fund the levels of pensions.



Roughly 40% of expenditure from the social insurance fund has nothing to do with pensions and the vast majority bulk of COAPs by value are drawn by employees - not the self-employed.

There are plenty of self-employed people that will contribute far more to the fund than they will ever draw down in their lifetimes - even ignoring any contributions they make on behalf of their employees - you seem to be suggesting that they are invariably getting a "free ride".  It would actually be more logical to argue that employees as a group are getting a free-ride as they are unduly benefiting from contributions made by their employers as opposed to their own contributions.

And that's before you get into the various other ways that the self-employed are unfairly treated as compared to employees under our tax code...


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## orka (9 Aug 2016)

Sarenco said:


> Yes, the fund gets a contribution of 14.75% per employee but only 4% is contributed by each employee - the balance is contributed by their employer


It's still a contribution paid to the government on behalf of a named person.  It's not a generic 'ABC employer' social contribution.  And because of this cost to the employer, they pay their employee less.  So effectively it is a cost to the employee.  This is the reason a lot of 'employees' think it's a good idea to become 'contractors' - for the same cost to the employer (client), the contractor pockets more because no employer's PRSI is payable but the 'employee' still accrues full pension benefits.


Sarenco said:


> Roughly 40% of expenditure from the social insurance fund has nothing to do with pensions


More than 80% of PRSI expenditure is on pensions - it is by far the highest costing benefit provided by PRSI contributions.


Sarenco said:


> the vast majority bulk of COAPs by value are drawn by employees - not the self-employed.


That's meaningless without knowing what % of retirees were employees vs. self-employed - I suspect the proportion is equally a vast majority in favour of retired employees.  Plus, self-employed have not always been entitled to COAP so there will naturally be fewer of them (none?) in the older age groups.


Sarenco said:


> There are plenty of self-employed people that will contribute far more to the fund than they will ever draw down in their lifetimes


And there are also plenty of employees who will contribute far more to the fund than they will ever draw down in their lifetimes - just from their own 4%s - never mind their employers' 10.75% contributions also disappearing into the not-remotely-related-to-pay Pay-Related-Social-Insurance black hole.


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## Monbretia (9 Aug 2016)

Well all I know is I need an operation on my foot which will stop me working for 3 months, I am self employed and so will get nothing for that 3 months (hence why I keep putting it off).  As well as now being self employed I paid over 30 yrs prsi as an employee, still nothing though!  I would certainly like the option of illness benefit as a self employed person.


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## Sarenco (9 Aug 2016)

orka said:


> It's still a contribution paid to the government on behalf of a named person.  It's not a generic 'ABC employer' social contribution.



That's correct - I never suggested otherwise - but I don't see how that changes the fact that the contribution is made by the employer, not the employee.



orka said:


> And because of this cost to the employer, they pay their employee less.  So effectively it is a cost to the employee.



Why would an employer pay an employee more than the lowest amount possible to secure their services? Out of the goodness of their heart?  Frankly that argument just doesn't stack up - employers' PRSI is most definitely an employer cost.



orka said:


> This is the reason a lot of 'employees' think it's a good idea to become 'contractors' - for the same cost to the employer (client), the contractor pockets more because no employer's PRSI is payable but the 'employee' still accrues full pension benefits.



It's certainly a reason why many employers think it's a good idea for their "employees" to become "contractors".  Again, I am arguing in favour of equalising employer/employee contributions, in part to address this issue.



orka said:


> More than 80% of PRSI expenditure is on pensions



Per the 2010 actuarial review of the social insurance fund (SIF), pension expenditure as a proportion of the total SIF expenditure was 57%.  COAPs as a proportion of total SIF expenditure has undoubtedly increased in recent years (which is why I said roughly 40% of expenditure from the SIF was non-pension related) but COAPs are certainly not currently over 80% of total SIF expenditure - nowhere close.



orka said:


> That's meaningless without knowing what % of retirees were employees vs. self-employed - I suspect the proportion is equally a vast majority in favour of retired employees.



Yes, I was simply addressing Brendan's hypothetical that current COAPs would be unsupportable without employer contributions - including employer contributions from the self-employed - which is certainly true.



orka said:


> And there are also plenty of employees who will contribute far more to the fund than they will ever draw down in their lifetimes



Indeed, I never suggested otherwise.  In this regard, some employees will be in exactly the same position as their self-employed peers.

It is worth bearing in mind that the self-employed pay PRSI at a rate of 4% of all earnings in excess of €5k and must pay a minimum of €500 pa, whereas a PAYE employee does not pay PRSI at all if their earnings are less than €18,304 pa.


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## Brendan Burgess (10 Aug 2016)

Let me try to simplify the argument by parking the PRSI discussion for the moment as it's really just a type of tax and not in any way pay-related.  And there are complications of non-pension benefits as well. 

Let's design a compulsory pension scheme for all employees and self-employed.  This will be a defined contribution pension scheme. 

Everyone has to have 10% contributed on their behalf.  So self-employed will contribute 10%.  If my employer contributes 10% on my behalf, then I don't need to make any contribution. 

As an employee, I won't care if I get a gross salary of €110k with no employer contribution or €100k with my employer making the contribution. 

As an employer, I won't care if I pay €110k with no employer contribution or €100k to the employee and €10k to the pension fund. 

As an employer, I will pay my employees as little as possible, but I don't care how I actually pay it. 

Before I take this argument further, do you agree with this analysis Sarenco? 

Brendan


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## Sarenco (10 Aug 2016)

That sounds like the Chilean system where all employees (with limited exceptions) are required to contribute 10% of their income to an actual pension fund (as opposed to a pay-as-you go model).  The self-employed may voluntarily contribute to a fund under that system but are not required to do so - in which case they obviously won't qualify for a pension. 

I personally would have no problem with that system (provided the self-employed can opt out), although the Chilean model has its own problems (largely related to the cost of administering the schemes).  As with most things, the State is not necessarily efficient in these matters.

Leaving tax complications aside, it obviously doesn't matter whether an employee makes a contribution directly or whether the contribution is withheld and remitted to the fund by their employer.


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## Brendan Burgess (10 Aug 2016)

I would see compulsory contributions for both the self-employed and employees as essential to the system.  If the self-employed are exempt, some will make no contributions and will become dependent on the state in their old age. 

Why would you exempt the self-employed? 

Brendan


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## Sarenco (10 Aug 2016)

Brendan Burgess said:


> Why would you exempt the self-employed?



Because otherwise you would be compelling the self-employed to invest a significant portion of their profits in businesses other than their own.  That would obviously be detrimental to our economy.

Bear in mind that many self-employed people continue to work past their NRA and will have built up a valuable asset at that point in time - their own business.  Different considerations apply to employees.

It's true, however, that the Chilean system retains an element of means-tested social provision outside their pension system to provide for invalidity, etc.

While I don't have a problem with the Chilean model, I wouldn't particularly be advocating this approach.  I happen to think that there is a lot to be said for the social insurance model.  In any event, I can't see any realistic prospect of us adopting the Chilean model - it's no coincidence that it was introduced by a dictator!


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## Brendan Burgess (10 Aug 2016)

Sarenco said:


> Because otherwise you would be compelling the self-employed to invest a significant portion of their profits in businesses other than their own. That would obviously be detrimental to our economy.



It makes very good sense for pension provision that self-employed should invest in businesses other than their own. If their business goes bust, they then have no pension provision. 

But I will agree with you for the sake of this argument.  The self-employed don't have to contribute to a pension fund, but they can starve in retirement if they have no fund. 

Now that we have sorted the pension scheme, let's set up an unemployment and illness benefit scheme.  Again, I would propose that everyone be obliged to contribute 3% of their salary to a personal account to fund periods of unemployment or illness.  If they lose their job, they will get a monthly payment depending on how much is in the fund.  This would be different from the pension fund, in that there would have to be an insurance element. But it would be much reduced. People who have no fund, would get very low, means teste,  social welfare payments from the state. People who have big funds would get, what is effectively, a refund of their own money. It would not be means tested.

Brendan


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## Sarenco (10 Aug 2016)

I certainly agree that it makes good sense for the self-employed (and everybody else for that matter) to diversify their investments across multiple businesses.  However, I would have a problem with compelling the self-employed to do so at a particular rate and point in time as dictated by the State.

The problem I would see with your other proposal is that it would unduly incentivise higher earners to access the fund - it's not that difficult to make yourself unemployed! 

I am personally uncomfortable with the idea of provision for disability or illness being dictated by means rather than need but I guess that's an ethical judgment of sorts.


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## ppmeath (10 Aug 2016)

orka said:


> And there are also plenty of employees who will contribute far more to the fund than they will ever draw down in their lifetimes - just from their own 4%s - never mind their employers' 10.75% contributions also disappearing into the not-remotely-related-to-pay Pay-Related-Social-Insurance black hole.




I would have to query that orka.

An employee contributing over 40 years to the PRSI (assuming no illness, no maternity pay, no unemployment benefit etc) on a wage of 40k will pay 64,000 euro in PRSI payments - the annual SCP is 12,131.60. Given the life expectancy for men is now 78 and women is 83 and the state pension age is now 66, a person will draw down what they contributed in 5 years and a half years.


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## orka (10 Aug 2016)

ppmeath said:


> I would have to query that orka.
> 
> An employee contributing over 40 years to the PRSI (assuming no illness, no maternity pay, no unemployment benefit etc) on a wage of 40k


I wasn't referring to people on 40K or anywhere close - they get an excellent deal from their 4% (gets marginal when you add the employers contribution though).  I was referring (as I presume was Sarenco) to high earning patsies who pay the most and get the least.


Sarenco said:


> Per the 2010 actuarial review of the social insurance fund (SIF),


If you have a good read of the report, you'll see many references to what an excellent deal the contribution/benefit mix is for the self-employed - and how few but the very highest self-employed earners pay anywhere near the value of the benefit they receive.


Sarenco said:


> It is worth bearing in mind that the self-employed pay PRSI at a rate of 4% of all earnings in excess of €5k and must pay a minimum of €500 pa,


Under the new pension framework starting in 2020, a person will accrue a full pension with 30 years of contributions.  So for the sum of €15,000 (30 years of €500 contributions), a self-employed person can accrue a full pension which is generally accepted to be worth in the region of €300,000.  My view that this is the bargain of the century (which it is...) is tempered by our fantastic system which gives pretty much the same benefit (albeit means-tested) to someone with no contributions...


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## ppmeath (10 Aug 2016)

orka said:


> I wasn't referring to people on 40K or anywhere close - they get an excellent deal from their 4% (gets marginal when you add the employers contribution though). I was referring (as I presume was Sarenco) to high earning patsies who pay the most and get the least.



That wasn't clear in your post.

The PRSI system is as it stands for  - a "social insurance" system, a fund that pays a multitude of payments, Child Benefit for example, and every family regardless of their income, is entitled to that payment.

For example a high earning family with 2 children will receive over 60k in Child Benefit up to the child's 18th birthday (Is it still 18 or has this been reduced?).



orka said:


> So for the sum of €15,000 (30 years of €500 contributions), a self-employed person can accrue a full pension which is generally accepted to be worth in the region of €300,000. My view that this is the bargain of the century (which it is...) is tempered by our fantastic system which gives pretty much the same benefit (albeit means-tested) to someone with no contributions...



But won't they still pay into the fund for over 30 years if they work or are self employed  - my reading of the new framework is that the qualification calculation has changed, it won't be based over your entire PRSI payments from the time you entered the system, as is the case now?


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## Brendan Burgess (10 Aug 2016)

Sarenco said:


> I certainly agree that it makes good sense for the self-employed (and everybody else for that matter) to diversify their investments across multiple businesses.  However, I would have a problem with compelling the self-employed to do so at a particular rate and point in time as dictated by the State.



From an ideological, libertarian point of view, I would prefer to make such provision optional. But from a practical point of view, many people will make no provision and will squander their money and then will demand that the state looks after them in old age. So, it's clear to me that pension provision should be compulsory for all. 



> The problem I would see with your other proposal is that it would unduly incentivise higher earners to access the fund - it's not that difficult to make yourself unemployed!



OK, now I propose to merge the pension fund and the unemployment and illness funds into one fund. Now if you are unemployed and drawing from the fund, you are drawing down your own retirement pot.  This would remove the current problem for many people where social welfare is higher than what they could earn.  If they are earning, they will be contributing to their pot. If they are dossing, they will be reducing their pot.  

There would be a problem for people who are genuinely ill in the long-term. They would run down their pot, but then they would switch to the state social welfare system. 



> I am personally uncomfortable with the idea of provision for disability or illness being dictated by means rather than need but I guess that's an ethical judgment of sorts.



I don't really have a problem with that.  A friend of mine has worked for the last 40 years and contributed huge amounts of employees prsi and his employer has contributed huge amounts of employers prsi to the Social Insurance Fund. He gets the same benefit as someone who has worked on and off and who has been on a much lower salary.   I think he should get a genuinely pay related benefit for a lot longer. 

Brendan


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## Sarenco (10 Aug 2016)

Brendan Burgess said:


> From an ideological, libertarian point of view, I would prefer to make such provision optional.



I'm really not making an ideological point.  

Take a mid-career dentist, with his own practice, as an example.  Ideally, he would like to invest all his net profits in a new dental chair, which he believes will benefit his practice and increase his earnings in the long term.  However, if the State dictates that he has to invest X% of his net profits in a range of other businesses every year he will not be free to deploy his capital in a manner that he calculates will benefit him most.  

Multiply that across our economy and you have an obvious problem.



Brendan Burgess said:


> If they are earning, they will be contributing to their pot. If they are dossing, they will be reducing their pot.



I thought you were arguing in favour of compulsory provision for old age - I didn't appreciate there was a carve out for dossers!



Brendan Burgess said:


> I don't really have a problem with that.  A friend of mine has worked for the last 40 years and contributed huge amounts of employees prsi and his employer has contributed huge amounts of employers prsi to the Social Insurance Fund. He gets the same benefit as someone who has worked on and off and who has been on a much lower salary.   I think he should get a genuinely pay related benefit for a lot longer.



Ok, but that implies that somebody that gets ill earlier in their career or that has been less fortunate during their working life should receive less State assistance when they can no longer work.


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## ppmeath (10 Aug 2016)

Brendan Burgess said:


> I don't really have a problem with that. A friend of mine has worked for the last 40 years and contributed huge amounts of employees prsi and his employer has contributed huge amounts of employers prsi to the Social Insurance Fund. He gets the same benefit as someone who has worked on and off and who has been on a much lower salary. I think he should get a genuinely pay related benefit for a lot longer.




This isn't the purpose of the "social insurance fund" though Brendan. It's rather like saying after paying car insurance for 40 years that you feel your friend should genuinely have a higher payout (benefit) then someone who has only paid car insurance for 10 years.

It's like any insurance policy - you pay in, you are a member and it should be there for you to access it if you need it and invariably if you need one part, as in unemployment benefit or illness benefit, then there are other benefits that kick in, rent allowance, access to education (mature student), medical card etc.

It's not supposed to "give you back" what you put in.


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## orka (10 Aug 2016)

ppmeath said:


> That wasn't clear in your post.


You need it spelled out that the group who pay more into the system than they get out are the high earners? 


ppmeath said:


> The PRSI system is as it stands for  - a "social insurance" system, a fund that pays a multitude of payments, Child Benefit for example, and every family regardless of their income, is entitled to that payment.
> 
> For example a high earning family with 2 children will receive over 60k in Child Benefit up to the child's 18th birthday (Is it still 18 or has this been reduced?).


Child benefit is not part of the social insurance system.  [From the report Sarenco referenced above: _Social Welfare expenditure totalled €20.8bn in 2010, comprising €9.5bn in Social Insurance expenditure. By way of background, of the remaining €11.3m Social Welfare expenditure (unrelated to the Social Insurance Fund), the two biggest components were Jobseeker’s Allowance of €2.8bn and Child Benefit of €2.2bn._]


ppmeath said:


> But won't they still pay into the fund for over 30 years if they work or are self employed  - my reading of the new framework is that the qualification calculation has changed, it won't be based over your entire PRSI payments from the time you entered the system, as is the case now?


As long as they are working, yes, they will pay into the fund.  The new qualification is moving from an average contributions system to a total contributions systems.  The average system can penalise those who start work early (e.g. if a person gets a summer job aged 16 and then retires at 66, their contributions are average over 50 years; they could have more total contributions but get a lower pension than someone who started work at 30) - the total contributions is fairer IMO.  Still not totally fair as it is number of contributions rather than amount of contributions but better than the current average system. Under the total contributions system, someone will qualify for a full pension once they have 30 years of contributions (whether that is from age 18 to 48 or 38 to 68) - additional years working and contributing don't 'buy' any extra pension.


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## orka (10 Aug 2016)

ppmeath said:


> This isn't the purpose of the "social insurance fund" though Brendan. It's rather like saying after paying car insurance for 40 years that you feel your friend should genuinely have a higher payout (benefit) then someone who has only paid car insurance for 10 years.
> 
> It's like any insurance policy - you pay in, you are a member and it should be there for you to access it if you need it and invariably if you need one part, as in unemployment benefit or illness benefit, then there are other benefits that kick in, rent allowance, access to education (mature student), medical card etc.
> 
> It's not supposed to "give you back" what you put in.


The insurance analogy would work if the 'premiums' were in any way related to the 'risk' (payout).  Or even if they were community related like Irish health insurance.  But higher earning PAYE and very high earning self-employed subsidise lower earners and most of the self-employed.  That's taxation, not (social) insurance.

Pretty much every country with a social insurance system has a strong pay-related component so there is a link between what you pay in and the benefits you expect to receive.  Either contributions are capped or benefits are increased (or a combination) - why should Ireland be so different?


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## ppmeath (10 Aug 2016)

orka said:


> Child benefit is not part of the social insurance system. [From the report Sarenco referenced above: _Social Welfare expenditure totalled €20.8bn in 2010, comprising €9.5bn in Social Insurance expenditure. By way of background, of the remaining €11.3m Social Welfare expenditure (unrelated to the Social Insurance Fund), the two biggest components were Jobseeker’s Allowance of €2.8bn and Child Benefit of €2.2bn._]



But it is a Social Welfare payment.



orka said:


> Still not totally fair as it is number of contributions rather than amount of contributions but better than the current average system. Under the total contributions system, someone will qualify for a full pension once they have 30 years of contributions (whether that is from age 18 to 48 or 38 to 68) - additional years working and contributing don't 'buy' any extra pension.



Agree, it is a fairer system, but can I refer you back to this part of your previous post:

_"So for the sum of €15,000 (30 years of €500 contributions), a self-employed person *can accrue a full pension* which is generally accepted to be worth in the region of €300,000. My view that this is the bargain of the century (which it is...) is tempered by our fantastic system which gives pretty much the same benefit (albeit means-tested) to someone with no contributions..."_

And if they pay another 20 years, then this a total of 25k in contributions over their entire working life  - or two years of the state pension at today's rate?


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## ppmeath (10 Aug 2016)

orka said:


> The insurance analogy would work if the 'premiums' were in any way related to the 'risk' (payout).  Or even if they were community related like Irish health insurance.  *But higher earning PAYE and very high earning self-employed subsidise lower earners and most of the self-employed.  That's taxation, not (social) insurance.*
> 
> Pretty much every country with a social insurance system has a strong pay-related component so there is a link between what you pay in and the benefits you expect to receive.  Either contributions are capped or benefits are increased (or a combination) - why should Ireland be so different?



No, I disagree, that is the very basis of "social" insurance. In Germany, for example, your benefit is based on your income (which of course defines your contributions), if memory serves, you receive about 75% of your last pay, but only for a defined period, I think it's 9 months, although it could be 12. 

Then your benefit is reduced to a living benefit payment, so the incentive is there to return to work as soon as you can.


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## Brendan Burgess (10 Aug 2016)

Sarenco said:


> Take a mid-career dentist, with his own practice, as an example. Ideally, he would like to invest all his net profits in a new dental chair, which he believes will benefit his practice and increase his earnings in the long term. However, if the State dictates that he has to invest X% of his net profits in a range of other businesses every year he will not be free to deploy his capital in a manner that he calculates will benefit him most.



A dentist is a very good example of what I am proposing. 

They generally have high incomes. 
Their costs are low relative to their income. 
Their need to invest in their business is particularly low. 
I presume that they don't buy a new chair every year. 

I know quite a few who have invested stupidly and are in financial difficulty and might be dependent on the state for their pension after years of high earnings. 

I would have no practical or ideological problem with forcing them to put 10% of their earnings into a pension fund. 

Brendan


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## Brendan Burgess (10 Aug 2016)

ppmeath said:


> This isn't the purpose of the "social insurance fund" though Brendan. It's rather like saying after paying car insurance for 40 years that you feel your friend should genuinely have a higher payout (benefit) then someone who has only paid car insurance for 10 years.
> 
> It's like any insurance policy - you pay in, you are a member and it should be there for you to access it if you need it and invariably if you need one part, as in unemployment benefit or illness benefit, then there are other benefits that kick in, rent allowance, access to education (mature student), medical card etc.
> 
> It's not supposed to "give you back" what you put in.



It is not remotely like car insurance. I drive a modest car and pay a modest premium.  I have no problem at all with that. I hope I never claim. 

Pay Related Social Insurance is not pay related and it's not insurance. 

Most people would accept that those of us who save more should be able to enjoy those higher savings in retirement. I presume you agree with that. 

If the benefit is defined as " €300 a week for 18 months illness or unemployment", then charge everyone the same premium. 

But it's unfair to charge an employee earning €100,000  a year €14,750 each and every year, and limit his claim to €300 a week for 18 months. 

That is why I think that a personal account would work very well.  Everyone would be encouraged to work.


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## orka (10 Aug 2016)

ppmeath said:


> But it is a Social Welfare payment.


Yes but that doesn't make it a PRSI benefit which is what this thread is about.


ppmeath said:


> Agree, it is a fairer system, but can I refer you back to this part of your previous post:
> 
> _"So for the sum of €15,000 (30 years of €500 contributions), a self-employed person *can accrue a full pension* which is generally accepted to be worth in the region of €300,000. My view that this is the bargain of the century (which it is...) is tempered by our fantastic system which gives pretty much the same benefit (albeit means-tested) to someone with no contributions..."_
> 
> And if they pay another 20 years, then this a total of 25k in contributions over their entire working life  - or two years of the state pension at today's rate?


Great. 25K contributions for 300K benefit.  That'll give the high earners the warm and fuzzies.  

Lots of things might or might not happen but there's no escaping the fact that this is a system where a person can accrue a full pension for 15K.  



ppmeath said:


> No, I disagree, that is the very basis of "social" insurance. In Germany, for example, your benefit is based on your income (which of course defines your contributions), if memory serves, you receive about 75% of your last pay, but only for a defined period, I think it's 9 months, although it could be 12.
> 
> Then your benefit is reduced to a living benefit payment, so the incentive is there to return to work as soon as you can.


You disagree but then your example agrees?  In Ireland benefits have no link to income except at the very lowest levels of income.  PRSI is just another form of taxation so we might as well just roll income tax, USC and PRSI into one system - at least it would save costs.


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## Sarenco (10 Aug 2016)

Brendan Burgess said:


> I presume that they don't buy a new chair every year.



Well, my dentist might do so if he was proposing to open a chain of dental clinics...

But my point is really that the most efficient deployment of capital is best left to business owners - not the State.



Brendan Burgess said:


> I know quite a few who have invested stupidly and are in financial difficulty and might be dependent on the state for their pension after years of high earnings.



Is the State also going to decide how to invest these contributions (to avoid people making "stupid" decisions)?  Maybe we should go the whole hog and nationalise the whole economy!


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## Sarenco (10 Aug 2016)

orka said:


> Lots of things might or might not happen but there's no escaping the fact that this is a system where a person can accrue a full pension for 15K.



As things currently stand, part-time employees earning as little as €38 per week can qualify for a full contributory state pension and they don't have to contribute anything at all to the fund.

Also, many higher income earners are actually employed by the State - no employer contributions there.



orka said:


> PRSI is just another form of taxation so we might as well just roll income tax, USC and PRSI into one system - at least it would save costs.



That sounds very sensible.


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## ppmeath (10 Aug 2016)

orka said:


> You disagree but then your example agrees? In Ireland benefits have no link to income except at the very lowest levels of income. PRSI is just another form of taxation so we might as well just roll income tax, USC and PRSI into one system - at least it would save costs.



I disagreed with this part of your post, those who earn more subsidise those who earn less, that is a "Social insurance" - not taxation.
*
"But higher earning PAYE and very high earning self-employed subsidise lower earners and most of the self-employed. That's taxation, not (social) insurance"*



orka said:


> In Ireland benefits have no link to income except at the very lowest levels of income. PRSI is just another form of taxation so we might as well just roll income tax, USC and PRSI into one system - at least it would save costs.



I don't disagree that the system needs to be looked at, which is why I gave the German example, but it will mean higher contributions. 



Brendan Burgess said:


> It is not remotely like car insurance. I drive a modest car and pay a modest premium. I have no problem at all with that. I hope I never claim.
> 
> Pay Related Social Insurance is not pay related and it's not insurance.


Two questions, the first is if you never claim do you expect a refund?

If you claim do you expect what you put in to be paid out? If you were insured for a year and had to claim? Would you settle for your modest premium returned?

Of course you wouldn't - you would be paid the value of your car and who do you think "subsidises" that? All the other people paying modest premiums who haven't claimed. 

PRSI is insurance in the very same way - if you need it then it absolutely should be there for you - but if you can go through your life in a well paid job and live a good life without having to "claim" it then isn't this also a good thing?


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## Brendan Burgess (10 Aug 2016)

Sarenco said:


> Is the State also going to decide how to invest these contributions (to avoid people making "stupid" decisions)? Maybe we should go the whole hog and nationalise the whole economy!



No need at all for that.  They could be managed by the funds industry. At the moment, people are paying huge prsi and it's just going to pay current welfare payments. 

Brendan


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## Brendan Burgess (10 Aug 2016)

ppmeath said:


> PRSI is insurance in the very same way - if you need it then it absolutely should be there for you - but if you can go through your life in a well paid job and live a good life without having to "claim" it then isn't this also a good thing?



It's not remotely like insurance other than the word "insurance" is in the name. 

If the people who designed prsi designed car insurance, everyone would pay the same premium. A 20 year old male, with a bad claims record,  driving a Porsche would pay the same premium as a claims free 60 year old driving a Skoda. 

I have no problem with a genuine social insurance product.  I don't even mind if it's community rated.  So we all pay €1,000 a year and if we claim we get €300 a week for 18 months.  But anything above €1,000 a year goes into a pot with my name on it which will pay me more than the €300 and a higher pension. 

Brendan


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## ppmeath (10 Aug 2016)

Brendan Burgess said:


> If the people who designed prsi designed car insurance, everyone would pay the same premium. A 20 year old male, with a bad claims record, driving a Porsche would pay the same premium as a claims free 60 year old driving a Skoda.



Well............ He wouldn't get insurance Brendan, and that is the why the word "social" is in the name because it's inclusive. 



Brendan Burgess said:


> I have no problem with a genuine social insurance product. I don't even mind if it's community rated. So we all pay €1,000 a year and if we claim we get €300 a week for 18 months. But anything above €1,000 a year goes into a pot with my name on it which will pay me more than the €300 and a higher pension.



Higher then 233.30 or just higher then someone who didn't contribute as much? Just curious?


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## orka (10 Aug 2016)

Sarenco said:


> But my point is really that the most efficient deployment of capital is best left to business owners - not the State.


That's just a fancy way of saying I'd rather pay less tax because I will look after my money better than the State will (which I whole-heartedly agree with!).  I would love to choose not to pay PRSI and for my employer to give me their employer's PRSI contribution instead of giving it to the state (I'll even split it with them so they are net better off too!).  I'll look after my pension and insurance arrangements myself.

Unfortunately, that's not an option - but the self-employed are part way there in contributing less than an employed person's total employer and employee contributions. 




Sarenco said:


> As things currently stand, part-time employees earning as little as €38 per week can qualify for a full contributory state pension and they don't have to contribute anything at all to the fund.


Their employer will contribute PRSI (€168 per annum) but I agree this is another massive bargain for the person.



Sarenco said:


> Also, many higher income earners are actually employed by the State - no employer contributions there.


Another topic which vexes me greatly – I won’t rant about public sector pensions here though…



ppmeath said:


> I disagreed with this part of your post, those who earn more subsidise those who earn less, that is a "Social insurance" - not taxation.


You don’t seem to understand what insurance is and how it is priced.  Insurance pricing will either be risk related (high powered car insurance is more expensive than modest car insurance) or community rated like Irish health insurance.  In both cases there are varying degrees of cross subsidy.  High powered car premiums generally subsidise other high powered cars etc – there’s a relationship between what you pay in a year and what you (as a group of high powered car owners) expect to receive.  In community rated health insurance, the young/healthy subsidise the old/sick and there’s a lifetime relationship between what you pay and what you (as a group) expect to receive.  Great if you don’t need your benefits but as a group you have received value.


Insurance premiums are never related to pay unless benefits are also related to pay.  


In your German example, contributions are related to income and benefits are related to contributions and income.  There is a cap on contributions because there is a cap on benefits (we used to have that here when employee PRSI contributions were capped).  That makes sense and it’s fair and it’s close to being true insurance.


The Irish systems bases contributions on income but benefits are (largely) flat – that is taxation.


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## ppmeath (10 Aug 2016)

orka said:


> You don’t seem to understand what insurance is and how it is priced. Insurance pricing will either be risk related (high powered car insurance is more expensive than modest car insurance) or community rated like Irish health insurance. In both cases there are varying degrees of cross subsidy. High powered car premiums generally subsidise other high powered cars etc – there’s a relationship between what you pay in a year and what you (as a group of high powered car owners) expect to receive. In community rated health insurance, the young/healthy subsidise the old/sick and there’s a lifetime relationship between what you pay and what you (as a group) expect to receive. Great if you don’t need your benefits but as a group you have received value.



Of course I do orka, you seem unable to understand that we belong to "a system of compulsory contribution to enable the provision of state assistance in sickness, unemployment, etc."


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## Sarenco (10 Aug 2016)

Brendan Burgess said:


> They could be managed by the funds industry.



Fair enough but that comes at a cost.

One of the key criticisms of the Chilean system is that it is very expensive to run and performance has been poor (relative to private pension funds).  There are obviously administrative costs per contributor and workers with lower incomes (about half the workforce) find it more challenging to accumulate significant capital and ultimately have to fall back on the (means tested) system that runs in parallel.  In practice, this ultimately this get you back to something resembling our own system in terms of its net result even though our current system, at least in theory, is a form of risk pooling, with a significant "social" element.


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## orka (10 Aug 2016)

ppmeath said:


> Of course I do


Of course?  Interesting.  Most people don't.


ppmeath said:


> you seem unable to understand that we belong to "a system of compulsory contribution to enable the provision of state assistance in sickness, unemployment, etc."


I and my bank balance are very aware of the system...

Ireland has a very good social safety net.  We also target a flat rate pension for workers after 30-50 years of working (or the social safety net of the same pension after not working).  How should these things should be funded?  You seem happy with our contribution system which is very different to any other country's.  Do you think other countries' contribution systems are unfair in having contribution caps and pay-related benefits?  Should they copy us?  Why don't we copy their structures?

I personally would like a system like most of Europe - pay-related contributions with income caps providing minimum benefit standards with caps in line with contribution caps.  And the self-employed contributing roughly the same as the combined employer/employee contribution and being entitled to the same benefits.


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## Sarenco (10 Aug 2016)

orka said:


> the self-employed are part way there in contributing less than an employed person's total employer and employee contributions.



That's far from universally true.  Bear in mind that a significant proportion of the self-employed and employees have low annual incomes.



orka said:


> And the self-employed contributing roughly the same as the combined employer/employee contribution and being entitled to the same benefits.



That's certainly not the case in Germany - most self-employed workers fall outside their social security system completely.

It's not the case in the UK either.  The self-employed pay 75% of what an employee contributes in NI up to £43k (there's no separate employer contribution) and 2% thereafter - same as an employee. 

While I agree with your broader point that our income tax and social security systems have become completely unbalanced and anomalous, it is overly simplistic to suggest that this would be "cured" by simply requiring the self-employed to pay the equivalent of employer and employee contributions unless you subsequent adjust this through the tax system so that the self-employed are ultimately put in the same position as employees (which is the case in the US).

However, the real elephant in the room, IMO, is the level of State pensions.  While I think it's a laudable policy that all workers should be entitled to receive a COAP equivalent to 35% of average weekly earnings, I personally don't think this will be remotely realistic in the future.  We either adjust now or push this problem further down the road - when it will be immeasurably more difficult to address.  

Our choice - no point blaming politicians.


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## orka (11 Aug 2016)

Sarenco said:


> It's not the case in the UK either.  The self-employed pay 75% of what an employee contributes in NI up to £43k (there's no separate employer contribution) and 2% thereafter - same as an employee.


They don't get full benefits with this reduced contribution - I think same contribution/same benefits is fairest.


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## Purple (11 Aug 2016)

ppmeath said:


> Of course I do orka, you seem unable to understand that we belong to "a system of compulsory contribution to enable the provision of state assistance in sickness, unemployment, etc."


That's what we have alright but it's not pay related and it's not insurance. It's a taxation system, not an insurance system.


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## ppmeath (11 Aug 2016)

orka said:


> Ireland has a very good social safety net. We also target a flat rate pension for workers after 30-50 years of working (or the social safety net of the same pension after not working). How should these things should be funded? You seem happy with our contribution system which is very different to any other country's. Do you think other countries' contribution systems are unfair in having contribution caps and pay-related benefits? Should they copy us? Why don't we copy their structures?



It really isn't about being happy, I just see the present system in a different way then you do. I am not comfortable with trying to "punish" (not saying that this is where you are coming from) someone who may not have contributed because they didn't work - because this means that they have probably been living on benefits their entire life - then we have to design a system to see why this was the case.

I do think that we all agree that it won't be sustainable in the future and that we will all have to contribute more - and one of my main bug bears is the amount of "lower earners" who are excluded  - I believe that everyone should pay something.



orka said:


> I personally would like a system like most of Europe - pay-related contributions with income caps providing minimum benefit standards with caps in line with contribution caps.* And the self-employed contributing roughly the same as the combined employer/employee contribution and being entitled to the same benefits*.



I fully agree with Sarenco here:



Sarenco said:


> While I agree with your broader point that our income tax and social security systems have become completely unbalanced and anomalous, it is overly simplistic to suggest that this would be "cured" by simply requiring the self-employed to pay the equivalent of employer and employee contributions *unless you subsequent adjust this through the tax system so that the self-employed are ultimately put in the same position as employees (which is the case in the US)*.






Purple said:


> *That's what we have alright* but it's not pay related and it's not insurance. It's a taxation system, not an insurance system.



Yes I believe it is and I agree with the points in relation  that Sarenco makes very well here:

_"While I agree with your broader point that our income tax and social security systems have become completely unbalanced and anomalous"_


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## Sarenco (11 Aug 2016)

orka said:


> They don't get full benefits with this reduced contribution - I think same contribution/same benefits is fairest.



Yes, the self-employed in the UK contribute less because they receive less benefits - same as here.  Nor do they require the same benefits - by definition they cannot become unemployed.

Personally, I would prefer the German system where the self-employed generally fall outside the social security system completely.  However, if the self-employed are to be kept within the social security system, then the position in the UK looks reasonably balanced to me in terms of aligning contributions and benefits.


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