Social Insurance

Background

Social insurance is administered by The Department of Social Protection.  The employment and training levy was formerly administered by the Department of Enterprise Trade and Employment.  It was abolished in 1999.

The Department of Health managed the Healthy Levy. Health contributions were paid pursuant to the Health Contributions Act 1979. The Universal Social Charge replaced both in 2011. It was intended as a significant revenue-raising measure.

The money taken in PRSI and levies is significant, almost over €10 billion.  This does not include  USC, which is treated as an additional income tax to some extent.

Contributors

So-called insured persons are obliged to pay social insurance contributions on their income.  Public service employees pay a modified rate.  They receive correspondingly less benefits.

Self-employed contributors pay a lower rate but are eligible for more limited benefits, than employed persons.  In particular they do not qualify for Jobseekers Benefit.

Funding

The social insurance scheme is funded separately to taxation. The liabilities are not funded. In very broad terms, an attempt is made to ensure that the income and outgoings of the fund equate.

Unlike pension schemes, the social insurance scheme does not invest in assets to match its long-term liabilities.  Its income and outgoings are almost entirely funded by current year revenue.

The National Pension Reserve Fund was created in the late 1990s to accumulate assets for the purpose of long-term liabilities.  This fund was largely used to recapitalize failed banks and has now largely been depleted. Deficits  in the  Social Insurance Fund are met by the Exchequer (general taxation).

Training Fund

The employment and training levy was formerly administered by the Department of Enterprise Trade and Employment.   The National Training Fund was established in 2000.  0.75% (lower on the lower rate) of employers’  contribution for Class A and H employees are paid to the fund.

The fund is under the control of the Minister for Business Enterprise and Innovation.  It is  designed to fund a range of training measures. Prior to this levies were payable by employers in certain industries, in particular in the construction and  engineering sectors.

Benefits

Social insurance  benefits include the various non-means test schemes under the social welfare code.  See separately the sections on social welfare.

These include Jobseeker’s Benefit, Illness Benefit, Invalidity Pension, State Pension (Contributory); Widowers / Surviving Civil Partner’s Pension, Guardian payments, Occupational Injury Benefits, Health and Safety Benefit, Treatment Benefits, Bereavement Grant, Carer’s Benefit.

The general rate of contribution for employees is 4%, For employers, it is 10.75 percent.  A lower rate of 4.25% applies where weekly income is less than €356.

Benefits in Kind

Social insurance and levies apply to benefits in kind since 2004.

Employer and employee PRSI and universal social charge on  benefits must be collected by the employer on the taxable value of the benefit.  The tax is determined by a reference to a notional payment and is to be deducted from salary in the same period as the benefits provided.

The person is deemed to receive a notional payment of an amount equal to the amount which is the best estimate that can be reasonably made of  the amount of income that is likely to be chargeable to income tax in respect of the benefit. The notional pay must be the best estimate that can be provided of the amount chargeable in respect of the benefit.

Voluntary Contributions

Individuals may make voluntary social insurance contributions in order to enhance retirement benefits.  If a person ceases to be an employed or self employed contributor and has qualifying contributions of less than 260 weeks he is entitled to become insured by paying contributions as a voluntary contributor.  This must be done within 12 months of the end of the tax year in which they last paid or  credited PRSI.

Voluntary contributors cease to be so if they become self employed contributor.  Voluntary contribution does not apply after retirement age.

Voluntary contributions for a previously insured person are based on a percentage of income up to the income level for the year The percentage rate applies to the income of the contributor in the preceding contribution year or where there is no income or income below a level, a minimum contribution set out below is payable.

Voluntary Contribution Rates

The percentage contribution payable by voluntary contributors are as follows.

• 2.6% where the contributions previously paid as an employed contributor did not insure the state pension
• 6.6% where the contributions paid did cover state pension.

Contributors paying a rate of 2.6% are insured for widows’ pension and bereavement grant.  Those paying 6.6% rate are also covered for the state pension.

Voluntary contributions may arise for an individual who retires early before normal retirement age. Contributions of the greater of €126 (2.6% rate) or €317 , 6.6% rate or that percentage of his reckonable earnings for the immediately preceding year.

Persons previously self employed may make voluntary contributions. The rate is €253  per year.  It covers the state pension, widow and widower’s pension.

Voluntary contributions may be paid by a lump sum before the end of the contribution year or by quarterly or half-yearly installments during the period.

Former Health Levy

The Health levy applied to reckonable earnings, reckonable emoluments and reckonable income. Reckonable emoluments mean employment income. Reckonable earnings are income from employment.  Since 2004 non-pecuniary income such as benefit, and kinds are included.

Contributions to pension schemes are deducted. No expenses or allowances are deductible in computing income subject to the levy.

Reckonable income for health contributions means the aggregate income from all sources in accordance with income tax less pension contribution.  After 2004 the rules also apply to benefits in  kind. Losses cannot be deducted against income for the purpose of the contribution.

It  applies to self-employed contributors.  Certain income including artist exemption, stallion exemption from income tax did not apply to health contribution.   Some sources of income exempt from income tax and also exempt from levies. The levies are collected through the PAYE system. The levies may be payable with preliminary tax.

Liability to contributions apply separately to each spouse.  Income is calculated separately in each case. This is the case irrespective of whether the parties are assessed jointly or singly.

Former Levies

Income from ordinary deposit accounts is subject to levies.  Income from certain special savings account is exempt.

The levy does not apply to dividends paid from an Irish source to non-residents.  It does not apply to the taxation applicable to life insurance and offshore funds.

The levies apply to income remitted to Ireland earned by non-domiciled resident individuals.  After 2008 the remittance basis applies to UK source income so that it is only taxed if remitted.