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Minister Doherty Welcomes Publication of the Actuarial Review of the Social Insurance Fund 2015
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Minister for Employment Affairs and Social Protection, Regina Doherty T.D., today welcomed the publication of the fourth Actuarial Review of the Social Insurance Fund.
The Actuarial Review is required by law to be completed every five years. Its purpose is to inform both short to medium term and long term policy developments in relation to the social insurance system. The first report was published in 2002 and subsequent reports were published in 2007 and 2012. This latest Review covers a 55 year period from 2016 to 2071.
The report shows that the Social Insurance Fund’s modest surplus of €0.4 billion in 2016, forecasted to increase in 2017, will reduce from the period 2018 to 2020 before returning to a small shortfall in 2020. The annual shortfalls are projected to increase into the foreseeable future as the ageing of the population starts to impact. It is estimated that, by 2030 the shortfall will be €3.3 billion increasing to over €22 billion by 2071 if no remedial action is taken. The review shows that these shortfalls, expressed in present value terms, accumulate to €335 billion.
Commenting on the findings of the Actuarial Review the Minister said “While the Fund currently has a small surplus, it faces significant financial challenges in the years ahead to ensure the adequacy of social insurance pensions and benefits for a growing and ageing population. The “Pay as You Go” nature of Social Insurance funding means that annual shortfalls are met by the Exchequer. It is clear that action needs to be taken over the short to medium term to put the long-term funding of social insurance on a more sustainable financial footing.”
The Review also examined a number of other aspects of social insurance including value for money achieved by different categories of contributors, the impact of different approaches to indexation of benefits, and the rates of contribution which would need to be paid to replicate State Pension Contributory and other benefits.
A range of policy options were examined as part of the Review including a Total Contribution Approach to qualifying for the contributory State Pension (described by the National Pensions Framework in 2010). It also examined the additional projected expenditure where Invalidity, Illness Jobseeker’s and Carer’s Benefits are extended to self-employed (PRSI Class S) contributors.
“The publication of the Actuarial Review provides Government with an evidence-led and timely opportunity to consider reforms as to how our social insurance system is financed. As Minister for Employment Affairs and Social Protection, I intend to consult widely on these reform options,” the Minister said.
A copy of the Report of the 2015 Actuarial Review can be downloaded here:
Actuarial Review of The Social Insurance Fund 31 December 2015
The Social Welfare (Consolidation) Act, 2005 makes provision for the carrying out of actuarial reviews of the Social Insurance Fund at five yearly intervals.
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Editor’s note
Under Social Welfare legislation, regular Actuarial Reviews of the Social Insurance Fund (SIF) are required to be undertaken at five‑yearly intervals. The first such review was published in 2002, the second review was published in 2007 and the third in 2012. The aim of the review is to establish the medium and longer‑term financial situation of the Fund. This Review sets out the positon of the SIF as at 31 December 2015 and presents projections covering the 55 year period from 2016 to 2071.
The 2015 Review was carried out independently by KPMG who were appointed following a competitive tendering process.
Social welfare payments in Ireland are made in three main categories: social insurance, which provides benefits based on an individual’s social insurance contribution history; social assistance, providing means-tested payments and universal payments such as Child Benefit, which are not means-tested. The Actuarial Review relates to Social Insurance payments only. The review will inform both short to medium term and long term policy development in relation to the social insurance system generally and builds on the findings of the previous reviews in relation to Social Insurance benefits and pensions.
Main Findings of the Actuarial Review of the Social Insurance Fund as at December 2015
The Fund currently has a modest surplus of income over expenditure (2016 surplus of €0.4 billion on expenditure of €8.8 billion and receipts of €9.2 billion).
The surplus is projected to increase in 2017 before reducing in the period 2018 to 2019 and returning to a small shortfall in 2020. The annual shortfalls are projected to increase from 2021 onwards as the ageing of the population starts to impact.
In the absence of further action to tackle the shortfall, the excess of expenditure over income of the Fund will increase significantly over the medium to long term. The modest 2020 projected shortfall of €0.2 billion is expected to increase to €3.3 billion by 2030 and to €22.2 billion by 2071. In the period to 2045 the accumulated deficit in the fund is projected to reach over €100Bn increasing to over €400Bn by 2071 with an accumulated present value of about €335Bn.
Expressed as a percentage of GDP, the shortfall is projected to increase from 0.1% of GDP in 2020 to 0.9% in 2030, 3.1% in 2055 before gradually reducing to 2.9% of GDP by 2071.
In the longer term, sizeable Exchequer subvention will be required to meet ongoing expenditure requirements in the absence of reductions in expenditure levels or increases in PRSI income.
In the medium- to long-term, pension-related expenditure is projected to continue to be the predominant component of the Fund expenditure rising from 70% in 2016 to circa 80% in 2071. The population over State Pension Age (SPA) is projected to increase from 12% of the total population in 2015 to 17% in 2035 to 23% in 2055.
The pensioner support ratio is projected to decline from 4.9 workers for every individual over age 66 to 2.9 workers in 2035 and to 2.0 workers by 2055. This position is alleviated somewhat by the increase in the state pension age to 67 and 68 in 2021 and 2028 respectively.
Social insurance benefits offer excellent value for money for those on the lower part of the income distribution or shorter contribution histories, and the self-employed. For those at the higher end of the income distribution, the Fund is redistributive and they generally get back less than they pay in.
As part of the Actuarial Review, and in conjunction with the Central Statistics Office, KPMG were required to produce the Accrued to Date Liability (ADL) of the Social Insurance Fund for EU reporting requirements. Any queries regarding the ADL should be directed to the Central Statistics Office.
Aonad Comhordaithe an Chórais Staitistiúil
Seoladh:
An Phríomh-Oifig Staitistiúil, Bóthar Bhaile Átha Fhirdhia, Ráth Maonais, Baile Átha Cliath 6, D06 FX52.
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Additional Information
Background on Social Insurance Fund
The social insurance system in Ireland operates through the Social Insurance Fund which was established in 1953.
Social insurance contributions (PRSI) are paid into the Fund which finances a broad range of contributory social insurance benefits, pensions and other payments.
The Irish social insurance system is a ‘pay as you go’ system whereby current contributors finance the pensions and benefits of present recipients, while also building up entitlement to their own future benefits.
Traditionally, social insurance spending has been funded on a tripartite basis with contributions coming from the Exchequer, employers and employees. Legally, the Exchequer is the residual financier of the Fund and Exchequer contributions were the norm for over forty years, e.g. in 1967 the State contribution was 38% and almost 29% in 1985.
The social insurance system has developed over the years and the vast majority of the working adult population is now covered by the system for pension purposes and, in the case of most employees, for short‑term benefits.