Pensions Commission recommended increasing self-employed PRSI to 10.5%

Brendan Burgess

Brendan Burgess

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I noted this in passing back in October when the Pensions Commission Report was published, but I must have been too busy to follow up on it. https://www.askaboutmoney.com/threads/pensions-commission-report-published.225036/post-1740865

But they really highlighted the issue of the self-employed paying too little PRSI.

You can read the full report here: https://assets.gov.ie/200480/564ea175-28b2-417d-aa9b-3f1750225310.pdf


13.2.3. Recommendation: Class S
The Commission agrees with the proposals from the wide range of bodies that the Class S PRSI rates
should increase. In this regard, the Commission recommends:

• Increasing the self-employed PRSI contribution rate. In the first instance, the Commission
recommends that Class S PRSI for all self-employed income is gradually increased from 4 per
cent to 10 per cent. In the medium term, the Class S PRSI rate should be set at the higher rate
of Class A employer PRSI (currently 11.05 per cent).
 

Attachments

  • Pensions Commission Report on Self Employed PRSI.pdf
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Leo Varadkar came out against it immediately.

www.irishtimes.com

Varadkar to oppose ‘massive’ rise in PRSI for self-employed

Fine Gael leader to line out against proposal designed to offset delay in pension changes
www.irishtimes.com www.irishtimes.com

However, self-employed people would bear the immediate brunt of measures to balance out the financial impact of the delay, with reported increases to PRSI contributions from 4 per cent to 11 per cent, under proposals from the commission.

Mr Varadkar is set to line out against the proposal next week, however, at the Fine Gael parliamentary party think-in. A Fine Gael source said he would “oppose the massive proposed PRSI hike for the self-employed, which would go directly against Government policy to support the self-employed”.



Paschal Donohue knocked the idea as well :

www.irishtimes.com

Donohoe against PRSI hike to resolve State pension age problem

Fine Gael fails to outline policy on changes to fund the delay in increasing qualification age
www.irishtimes.com www.irishtimes.com

Raising the rate of pay related social insurance (PRSI) for self-employed people to help fund a delay in the rise of the State pension age could damage efforts to get people back to work after the pandemic, according to Minister for Finance Paschal Donohoe.

Fine Gael has set out its opposition to a proposed PRSI hike for the self-employed. But the party has not said how it would fund changes to the pension regime that would mean the rise in qualification age from 66 would not begin until 2028.
 
The bit that most amazed me is that so many previous reports have highlighted the issue:

  • 2009 Commission on Taxation
  • 2013 Advisory Group on Tax and Welfare - recommended extending the benefits to the Self-employed with commensurate increases in the PRSI contributions
  • 2015 Actuarial Review pointed out that the 4% rate was 11.8% below what was needed to fund a full state pension
  • 2016 A DEASP survey of 3,000 self-employed found that they would be willing to pay more for more benefits.
  • 2019 DEASP report proposed considering increasing the rate to the rate of the employer
  • 2020 NESC report proposed increasing the self-employed rate
  • 2021 ESRI report showed that €4,420 more tax (IT,USC and PRSI) is paid on behalf of an employee earning €40,000 than a self-employed person earning €40,000.
Brendan
 
Some professions can't incorporate, so they would have no way of limited the income that is taxable. If earning over €100k, they already pay 55% in tax. This would increase it to 61.5% in tax.

Meanwhile, an employee at a multinational, earning over €100k pays tax at 52% plus gets free company shares.

Bit of a disparity in taxation between the two.
 
Steven Barrett said:
Some professions can't incorporate, so they would have no way of limited the income that is taxable. If earning over €100k, they already pay 55% in tax. This would increase it to 61.5% in tax.

Meanwhile, an employee at a multinational, earning over €100k pays tax at 52% plus gets free company shares.

Bit of a disparity in taxation between the two.
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Their employer will pay 11.05% on top of that €100k so the marginal rate of tax paid on their income is 63%, they just don't see the first 11% being taken away.
 
Purple said:
Their employer will pay 11.05% on top of that €100k so the marginal rate of tax paid on their income is 63%
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Why would you assume that the employees would receive an additional 11.05% in income if their employer didn't have to make those PRSI contributions?

Also, bear in mind that a lot of self-employed professionals have employees.
 
Sarenco said:
Why would you assume that the employees would receive an additional 11.05% in income if their employer didn't have to make those PRSI contributions?
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The party with more market power effectively shoulders the tax, regardless of who makes the payment to Revenue.

If employers' PRSI disappeared in the morning employees would be able to bid up wages somewhat, although not for the full amount.
 
Personally, I think that employers' contributions should be reduced and employee/self-employed contributions should be increased proportionately, with reasonable ceilings in both cases.

But I can't see that happening any time soon.
 
That is why my solution is the simplest.

Put the contributions into a pot in the person's name.

Then it won't be regarded as a tax.
And if the self-employed don't want to contribute any more than 4% , fine. They will just get very little pension when they retire.

Brendan
 
ryaner said:
How does one get these "free company shares"? Pretty much every type I know of involves tax, at the margin rate.
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Employers pay PRSI on wages, but not compensation in the form of company shares as I understand it.

It seems odd that one has PRSI levied on it but not the other.
 
Brendan Burgess said:
That is why my solution is the simplest.

Put the contributions into a pot in the person's name.

Then it won't be regarded as a tax.
And if the self-employed don't want to contribute any more than 4% , fine. They will just get very little pension when they retire.

Brendan
Click to expand...

Individual accounts are a non-runner I think, Irish governments - all of them - want to keep this system as close as possible to how it currently works.

The government uses the overpayment (relative to expected benefits) of PRSI from employees earning slightly higher than average wages to subsidize the system. If it's in individual pots they can't do that.

Just as one example for COAP you need 48+ yearly average contributions to get 253 euro, if you've 20 yearly average contributions you get 215, i.e. 85% of the full rate. Maybe that'll benefit one of us - who knows - but it's not reflecting the economic cost of the reduced contributions.

At the moment we're also subsidizing most self employed pensions, but it's hard to demand they pay up when they'll then be getting back less than they pay in. For regular employees that terrible value is disguised by having the employer pay the bulk of the PRSI.
 
ashambles said:
At the moment we're also subsidizing most self employed pensions, but it's hard to demand they pay up when they'll then be getting back less than they pay in. For regular employees that terrible value is disguised by having the employer pay the bulk of the PRSI.
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Hi ash

We, the taxpayer, are subsidising PAYE employees' Contributory Old Age Pensions but not by that much.

We are paying a huge subsidy to the self-employed.

It is one of these things which will eventually be fixed. But it won't be fixed if everyone says "nothing changes in this country, so don't bother trying to correct things."

Brendan
 
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