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€5 rise in pension is all but ruled out as officials back higher social welfare benefits

Warning of PRSI hike to make up for effects of Covid payments


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A €5 increase in the State pension is as good as ruled out in detailed analysis that instead backs higher benefits for working-age people on social welfare in next month’s Budget.

Another year without a pension increase is likely to be politically a tough sell for Fianna Fáil TDs, while Fine Gael backbenchers may react against a push to hike PRSI for workers while at the same time lifting social welfare rates.

Pre-Budget work from officials at the Department of Social Protection says an extra €5 a week on the pension will have little effect on reducing poverty. In fact, retired people, many of them homeowners, are among those least at risk of poverty, according to analysis in the Tax Strategy Papers prepared ahead of next month’s Budget.

An extra €5 a week paid to working-age people dep- endent on social welfare, including people who are unemployed or who cannot work due to a disability, would cost €217m a year but would have a much greater impact on their individual circumstances, the paper argues.

The papers also support targeted extra payments of €5 for children over 12 and €2 a week for younger children in lower-income households.

Meanwhile, a paper from officials at the Department of Finance says workers, their employers and the self-employed could be hit with a hike in PRSI to refill the pot emptied during Covid.

Measures being considered by officials in the Department of Finance ahead of the Budget would see the rate of PRSI increased to fund the rising cost of state pension payments.

Raising most PRSI rates by 1.5pc has been recommended by the officials to ensure there is enough money in the social insurance fund.

Most of those in employment pay 4pc PRSI. The paper says this could be increased to 4.5pc in 2023 and to 5pc by 2025. Under the proposal, it would rise to 5.5pc in 2025.

Part of the proposal sees the levy hitting lower incomes than at present. The civil servants look at moving the PRSI threshold from incomes of €18,304 at present to €13,000.

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Employers pay another 11pc on behalf of their staff into the PRSI social insurance fund.

Hefty hikes are also proposed for the self-employed.

They currently pay 4pc, but it is proposed this will go to 5.5pc by 2023. It would then rise to 7pc by 2024, rising each year until it hit 12.55pc by 2028.

A similar recommendation was made by the government-appointed Pensions Commission. Its recommendation would see contributions of the self-employed soar from 4pc to 11pc in years to come.

However, Tánaiste Leo Varadkar has said he is opposed to such a rise in PRSI for the self-employed.

The Irish Congress of Trade Unions has highlighted in the past that self-employed people get most of the benefits from the social insurance system but pay PRSI at a much lower rate than the combined employer/employee contribution for those in employment.

The Tax Strategy Group says employers should also pay more to fund pensions, social welfare and maternity and paternity benefits and unemployment benefit.

It says the two rates – of 8.8pc for those earning less than €398 a week and 11.05pc for those earning more than that – should both rise to 12.55pc.

A deadline of 2027 is proposed for this new higher rate.

The social insurance fund, which is paid for by PRSI payments, has taken a hammering during the pandemic, mainly due to the numbers forced to claim PUP.

The fund had a surplus of €3.9bn at the end of 2019.

The paper states that an accumulated surplus of €450m was “eliminated” last February.

It means the fund is expected to slump to a deficit of €3.8bn this year.

The Tax Strategy Group’s proposals to increase the rates would total €3.6bn by 2027.

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