Retired Self-Employed

on Saturday, 05 July 2003. Posted in Issue 38 Dying on the Streets, 2000

Mary Purcell lives in a rural parish in the West of Ireland.

Bill Toner S.J. is Director of the Jesuit Centre for Faith and Justice, Dublin.

A Penny-Pinching Pension Scheme

Social Insurance for self-employed persons was introduced in 1988.  This was a progressive move, long overdue.   Before the change, people who chose the option of becoming self-employed people were more at risk of insecurity and poverty in old age than those employed by others.  Many thousands of self-employed, from small shopkeepers to bicycle repair men, were too poor to be able to negotiate their own personal insurance schemes and in old age they became a burden, grudgingly borne, on the state.  In fact, notwithstanding the above title, many of the group on which this article focuses are not actually ‘retired’ since they cannot afford to retire.  But they are at the age at which most of their fellow-citizens have retired.


The 1988 legislation was an attempt to change the situation.  However, there was a sting in the small print of the legislation.   Those who were aged 56 years and over in April 1988 were required to pay P.R.S.I. but could not qualify for the Old Age (Contributory) Pension.  This was because they did not satisfy the standard requirement of having entered insurance at least 10 years before the pension age of 66 years.

This was such a glaring anomaly, that the government made a half-hearted attempt to rectify it in the Finance Act of 1999.   This provided that the self-employed who have less than 10 years, but at least 5 years, P.R.S.I. contributions will qualify for half-rate old age contributory pension.   This was not a wonderful improvement, but it was better than nothing.  But, crucially, it left those who were aged 61 and over in April 1988 in receipt of no contributory pension whatsoever, even though they paid 100 per cent of their contributions when they were allowed to do so, i.e. from the age of 61 to 66, a period of less than 5 years.

The point must be made that if it is now considered a matter of justice that self-employed people should be allowed to pay P.R.S.I., then it was an injustice when they were not allowed to do so before 1988.   It was not the fault of the poorer self-employed that they came to the end of their days uninsured.  Thus the state should give them the benefit of any doubt in relation to any reasonable mechanism for correcting the situation.

Thus it seems quite reasonable that self-employed persons who happened to be older than 56 years in 1988 should at least be allowed to purchase the required number of years contributions at some appropriate rate.  However  the  government  has  steadfastly refused to allow them to do this.

Unfairness to a Vulnerable Group

The people affected by this policy are now over 68 years and many are over 70.   For those living in rural areas the situation is particularly harsh because:

·        In the sparsely populated areas there are few young or middle-aged women, so home helps and meals on wheels are not generally available.

·        There is often no public transport (and therefore no free travel) within several miles.  With the general increase in car numbers, travelling shops are a thing of the past.    It is necessary to have a car, or to hire transport, to procure food, visit a post office or bank, or attend church.

For this particular age group paying for medicines is expensive.  From July 1999 over £42 per month must be paid before the Drugs Refund Scheme will help.

It is unrealistic to regard the means-tested non-contributory old age pension as a just alternative to allowing those contributors aged 68-76 years to purchase their missing years of P.R.S.I.    Experience has shown that old people who have saved money out of a meagre income consider the means test to be an invasion of privacy.  Many will not subject themselves to this scrutiny, which is not required of many other categories of persons who are much younger and who receive State aid. Clearly many elderly contributors prefer to starve rather than reveal their private business or lie about their savings.    In any case the rate of payment of non-contributory old age pension payable after means testing can be very low.

Effectively, the current regulations make distinctions between different groups of self-employed on grounds of age, which is contrary to the spirit at least of the most recent anti-discrimination legislation.

However even more striking are the distinctions made between the self-employed and other categories of citizens:

·        A person who has been employed and paid P.R.S.I. for three years is allowed to buy P.R.S.I. to preserve their entitlement to pension.  This provision is available regardless of means or income, provided one has not reached pension age.

·        A widowed person can qualify for pension with only 3 years full P.R.S.I. paid, whether paid by self or spouse.

The Government’s Response

The Department of Social Community and Family Affairs (DSCF) insist that there is no provision for retrospective payment of contributions to achieve entitlement to a contributory pension and that there are no plans to change existing arrangements.

The Department’s only explanation for its age-related policy is that it wishes to ensure that entitlement to a pension is limited to those who have made some reasonable level of contributions to the Social Insurance Fund over a given period of time.  The present policy shows great insensitivity, especially towards those contributors who are over 70 years of age and who paid 100% of their contributions in the years they were permitted to do so.  They are powerless to change the 1988 provisions, which discriminated against them on the basis of age.  The 1988 Act could have included the option to purchase P.R.S.I. for the required number of years.  It  did  not  do  so, and  the consequences for many elderly people have been years of worry about their old age, and frugal living as they eke out their savings.

During the years that these contributors have been given no chance to pay their shortfall in contributions, due entirely to their age in 1988, many of them have died.  The rest are becoming older, weaker in physique, and isolated.  The State on the other hand has made savings from the contributions they made and the pension they did not get.   One dismissive gesture that was put in place in 1997 states:

In the event that a self-employed person has paid sufficient contributions to qualify for this new pension, the pension element (53%) of the paid PRSI contributions may be refunded, a facility which has been in place since 1997.

By implication this is an admission that there was an unfairness in requiring people to pay P.R.S.I. even though they would not gain a pension from it.  Will the state now pay interest on these refunded appropriations, and make up for the loss in value through inflation?

A Law for the Rich and a Law for the Poor

Those elderly people who paid 100% of their contributions when they were allowed to pay, and who have no pension even though they are prepared to pay their shortfall, must marvel at the magnanimity of the State in respect of certain pensions:

·        In 1999 legislation was rushed through to provide pensions to two judges who were alleged to have behaved improperly in office.  There was no means test.

·        In 2000 the Oireachtas legislated in regard to the pension of a third judge.  His nine year’s service was deemed to be regarded as fifteen for the purposes of the pension.

·        In Partnership 2000 (negotiated in 1997) the right was granted to teachers, TDs and others to purchase (out of their retirement lump sum) P.R.S.I. pension entitlement for missing years

·        In 1987 Civil Servants taking early retirement were granted up to 7 years free credit of contributions towards a pension.

·        Government Ministers with only 3 years in office are entitled to a pension.

Incidentally, the State’s new Old Age (Contributory) Pension 1999 has been much criticized for not being truly pro-rata.  Those contributors with a shortfall of as little as 60 days (i.e. those who paid for 9 years and 305 days when they were allowed to contribute) do not receive even 9/10ths of the full Contributory Old Age Pension.  They receive half instead.  This 1999 provisions could easily have been set up as pro-rata by computer, since the Old Age Contributory Pension is a fixed sum.

In the present period of economic prosperity, the next Budget should at least include the option for the former self-employed aged 68-78 years to purchase their shortfall.   This is a compliant group, whose only faults are that they were over 56 years in 1988 and that they constitute too small and fragile a group to pose a threat to the government.   They have been discriminated against since 1988 and time is running out for the State if it wishes to right this wrong.

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Working Notes is a journal published by the Jesuit Centre for Faith and Justice. The journal focuses on social, economic and theological analysis of Irish society. It has been produced since 1987.