Social Insurance Fund will be broke in 3 years

[kerrynorth]

You heard it here first. The Social Insurance Fund will be broke by the end of 2011. Being an economist by background I have a tendancy to delve into the detail of the estimates of each and every government department - there are always interesting nuggets of information lurking in the drab detail of income and expenditure sub-headings.

Anyway without doubt the biggest nugget by far is the almost certain likelihood on the basis of the 2008 adjusted and 2009 estimated figures is that the SIF will be broke by the end of the 2011. It is deteriorating at an even faster rate than than the overall public finances. If corrective action is not taken quickly this is another massive bill awaiting the public finances come the 2012 budget.

Corrective action requires either an increase in PRSI contributions or a scaling back in schemes, the level of cover provided, or access into schemes. We have already seen the beginings of this with the changes to the Jobseekers Benefit payment. They changed the qualification from 1 to 2 years in employment, reduced the scale of payment from 15 to 12 months, and also backed dated this change to include those who have been in receipt of Jobseekers Benefit for the last 6 months.

The deterioration this year has been outstanding but is nothing compared with what is coming down the line. At the time of the 2008 budget it was estimated that the SIF would have a surplus of nearly €4.2billion at the end of 2008 - that has now been revised down to just €3.4billion, a €800million overestimate in the revenue and expenditure on SIF schemes for 2008.

For 2009, despite the changes in the Jobseekers benefit and minimal pension and other payments increase, there is expected to be in excess of a €900million deficit in SIF bringing the estimated surplus down to €2.5billion at the end of 09.

Now the only guaranteed thing about these figures is that you can be sure that the government have given an over optimistic gloss to these figures based on its budget projections. In the budget the government based their figures on what almost every serious economist would say was a optimistic view of likely economic outturn next year. In the SIF estimates for example there is only an allowance for a 1% fall in contributions despite the estimate by Davys that employment will fall 4% next year, or circa 80-85k less working in the economy and also drawing from the SIF.

Another impact of this that the governments €300 a week pension commitment at the last election is now as dead as the dodo. I am surprised that this has got no attention whatsoever and that the likes of the Unions have not been highlighting it. Any deficit in the SIF has to be made up taxpayer and this is a massive bill that is looming for the taxpayer in about 3 years.

[Clanrickard]

Any deficit in the SIF has to be made up taxpayer and this is a massive bill that is looming for the taxpayer in about 3 years.

Or massive cuts in Social Insurance.

[kerrynorth]

I hate to say I told you so but I TOLD YOU SO!

In fact the situation has deteriorated so badly in the last 6 months that the fund will deplete by early 2010 rather than in 2011 as I reckoned. This is another €1-2billion a year bill awaiting the taxpayer.
RTÉ Business: Pressure on Social Insurance Fund

[smitchy2]

It looks like cuts will be needed across the board in social welfare transfers.
Child benefit, dole and single mother allowances.

This is the quickest and easy cut the government can implement just the same as increasing the rates is the easiest and quickest way to get in more income.

Ugly stuff.

[NeilW]

Er, isnt social insurance funded on a PAYGO basis so there is only a nominal fund anyway? So the fact that the working balance has been extinguished has absolutely no impact at all? What exactly do you see the significance of this as? We already knew that contributions would fall and outgo increase, this news is just a simple consequence of that rather than a disaster in its own right as you seem to be suggesting.

[kerrynorth]

Er, isnt social insurance funded on a PAYGO basis so there is only a nominal fund anyway? So the fact that the working balance has been extinguished has absolutely no impact at all? What exactly do you see the significance of this as? We already knew that contributions would fall and outgo increase, this news is just a simple consequence of that rather than a disaster in its own right as you seem to be suggesting.

The difference is that an extra €1-2billion a year in taxes/borrowing will have to be found to plug this hole unless either benefits are slashed or PRSI rates increased. The SIF has gone from a circa €5billion surplus to zilch in literally 3 years. This is a new bill for the exchequer.

[NeilW]

The difference is that an extra €1-2billion a year in taxes/borrowing will have to be found to plug this hole unless either benefits are slashed or PRSI rates increased. The SIF has gone from a circa €5billion surplus to zilch in literally 3 years. This is a new bill for the exchequer.

But it isnt a new bill, social insurance is funded on a paygo basis, current expenditure is always paid for from current income rather than from built-up funds.

[mollox]

The difference is that an extra €1-2billion a year in taxes/borrowing will have to be found to plug this hole unless either benefits are slashed or PRSI rates increased.

Nah, they'll just top it up from the Public Service Pension Fund.

[wysiwyg]

yeah, heard that today on News at One. Senior Civil servants told the PAC it'd be gone in the middle of next year.

Major question is, what exactly is paid for out of this fund, so we can get some understanding of what will have to be paid for (or cut) if it runs out ?

[Factorem]

Is this the reason why all the gardai are retiring early?