The Self-Employed and the Old Age Contributory Pension

CHIEF EXECUTIVE SPEECH

‘THE SELF-EMPLOYED AND THE OLD AGE CONTRIBUTORY PENSION’

In 1988 legislation was introduced making it compulsory for the first time for the self-employed to contribute tothe social insurance scheme. Certain benefits were payable to them under the scheme. Originally they were entitled, provided specified conditions were met, to:

• a widow’s and widower’s contributory pension,
• an orphan’s contributory allowance, and
• an old age contributory pension.

From 1998, the benefits were extended to include:

• a maternity benefit,
• an adoptive benefit, and
• a bereavement grant.

By far the greatest percentage of an individual’s contributions, over 50%, went towards the old age contributory pension. In fact, one of the main purposes of the 1988 legislation was to bring the self-employed within the system of social insurance and, in particular, to address an inadequacy in the pension cover of the self-employed. This was made clear by the then Minister for Social Welfare during the passage of the legislation through the Dáil. He explained the rationale for the legislation in the following terms:

Up to now the [self-employed] were excluded from compulsorysocial insurance and left to make their own pension arrangements. Many now relyon means-tested social assistance. Up to 70 per cent of formerly self-employed persons qualified for social assistance pensions to which they had not directly contributed. The result of this policy was inadequate pension cover for a large segment of the population and inequity in the financing of social welfare generally.

The downside of the legislation for some contributors was that it was not possible for them, by virtue of their age, to qualify for an old age contributory pension. One of the qualifying conditions was that a person had to have entered into insurance before the age of 56 to obtain this benefit. Those over the age of 56 at the time therefore had to contribute towards this benefit without the possibility of ever receiving it.

Representations were made to the Minister about their situation, including the possibility of allowing them to continue paying contributions beyond the cut-off age of 66 until they had 10 years of contributions completed. The possibility was excluded by the Minister on the ground of cost. No provision was made for a pro rata pension calculated on the basis of a percentage of the number of years’ contributions.

However, the Government does appear to some extent to have been responsive to the sense of injustice felt by those contributors excluded from receipt of the old age contributory pension. In 1999, further legislation was introduced which would afford a special half-rate pension to self-employed persons who had made at least 5 years’ contributions to the social insurance fund before reaching the age of 66. The legislation applied to those who, on the relevant date in 1988, had attained the age of 56 but had not attained the age of 62. No provision was made for a true pro rata pension; and the legislation left a relatively small cohort of contributors, those aged over 61 in 1988, without the possibility of receiving any old age contributory pension.

The Gallaghers, a married couple, approached the Commission and requested it to conduct an enquiry into this matter. They ran a small business, and both were over the age of 56 when they were required by law in 1988 to pay PRSI. Mr Gallagher was 61, and Mrs Gallagher was 57. When the 1999 legislation was enacted, both fell within the relevant age bracket in order to qualify for a half-rate old age contributory pension, being between 56 and 62 years of age in 1988; but Mr Gallagher could not satisfy the condition of 5 years’ contributions, since he was 61 years and a few months old in 1988 and the cut-off age for contributions was 66. Both retired in the 1990s, before the 1999 legislation was passed.

On learning that they did not qualify for an old age contributory pension, they offered to aggregate their contributions so that Mr Gallagher could receive a half-rate pension. They also offered to make up the few months’ shortfall in Mr Gallagher’s contributions so that he might qualify

for this pension. The Department refused their offers and pointed out that there was no legal basis on which they could accede to such requests.

The Commission is empowered to conduct an enquiry into any relevant matter at the request of any person who considers the conducting of such an enquiry to be necessary or expedient for the performance of a number of its other functions. Among these other functions are:

• the keeping under review of the adequacy and effectiveness of law and practice in the State relating to the protection of human rights; and
• the making of such recommendations to the Government as the Commission deems appropriate in order to strengthen, protect and uphold human rights in the State.

After considering the Gallaghers’request, the Commission agreed with them that it would be expedient for the performance of these particular functions to conduct an enquiry into the matters raised by them and decided to do so.

Having examined the relevant law and its impact on the Gallaghers and on persons in a like situation, the Commission then considered the application of a number of international human rights standards to these matters. The standards which it identified and applied as relevant are:

• the right to adequate social security, including social insurance;
• the right to the peaceful enjoyment of one’s possessions without arbitrary interference; and
• the right to equality before the law and non-discrimination in the enjoyment of rights.

It is the first of these standards, the right to adequate social insurance, which appears most clearly not to have been respected. The European Code of Social Security, which has been binding on Ireland since 1972, contains certain guarantees in respect of the payment of old age benefit. Among other guarantees, it provides that where a benefit is conditional upon a minimum period of contributions, a reduced benefit shall be payable under prescribed conditions to an insured person who, by reason only of their advanced age when the provisions concerned came into force, has not satisfied the condition.

The minimum period of contributions required under the 1988 legislation to qualify for an old-age contributory pension when Mr Gallagher reached retirement age was 3 years. Mr Gallagher satisfied this condition. However, as one of the other conditions for payment of the pension was entry into insurance before the age of 56, he could not satisfy this condition by reason of his advanced age when the legislation entered into force. The introduction of the half-rate pension in 1999 did not afford him a reduced benefit. One of the conditions under the 1999 legislation was a minimum of 5 years’ contributions, and he could not meet this condition, again by reason of his advanced age in 1988. It therefore appears that Mr Gallagher and others in a similar position to him are entitled to a reduced old age pension.

In contrast, Mrs Gallagher, while she did not enter into insurance before the age of 56, would have been eligible for the half-rate pension for the self-employed had she continued to pay the required contributions up to retirement, but she did not do so.

There is also doubt as to whether the other two relevant international human rights standards, the right to the peaceful enjoyment of one’s possessions and the right to equality before the law and non-discrimination in the enjoyment of rights, were fully met.

The Commission is conscious that it is not an adjudicatory body. It does not decide on the merits of alleged violations of human rights, nor does it have the competence to afford a remedy to persons who believe that their human rights have been violated. Nevertheless, it may make recommendations to the Government in order to strengthen, protect and uphold human rights in the State. On the basis of this enquiry, the Commission accordingly makes the following recommendations to the Government:

1.The relevance of international human rights standards should be closely examined in the formulation of public policy and legislative proposals in the field of social security. While this is important in relation to all relevant international human rights standards, it is of particular importance where the relevant international agreement, as in the case of the European Code of Social Security, is not enforceable in Irish law.

2.A reduced benefit should be paid to those self-employed persons who contributed to the social insurance scheme but did not qualify for an old age contributory pension because they did not satisfy a prescribed condition for the payment of the pension by reason only of their advanced age when the relevant legislative provisions entered into force. In this regard, the Government may wish to consider amending therelevant legislation to provide for a pro rata old age contributory pension for the self-employed, instead of requiring that a self-employed contributor have entered insurance before the age of 56.

3.Every effort should be made by the authorities to trace these persons so that they are aware of the possibility of receiving a reduced benefit.

4.Mr Gallagher should be paid a half-rate pension, given that he was only a few months short in contributions from qualifying for this pension and would have qualified for it had it been legally possible to credit him with his wife’s contributions.

Finally, I would like to acknowledge the sterling work carried out by the Commission’s Senior Caseworker, Des Hogan, on the enquiry and this report as well as the assistance provided on specific matters by the Assistant Caseworker, Gerry Finn, and the Administrator (Finance and Human Resources), David Carolan. I would also like to commend the Department of Social and Family Affairs for its exemplary co-operation with the Commission in the conduct of this enquiry. All public bodies, not only the Human Rights Commission, should go about their business in a way which is respectful of the human rights of all persons in the State.

Thank you for your attention.

Alpha Connelly

Chief Executive

Human Rights Commission

11 April 2007

1