Michael Creed (Cork North West, Fine Gael)
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Question 59: To ask the Minister for Social Protection if she will elaborate on the proposed changes to the social welfare code as they relate to self-employed persons or those formerly self-employed but currently not in receipt of a social welfare payment, and their entitlement to transition year pension payment from January 2014; and if she will make a statement on the matter. [14719/12]

Joan Burton (Dublin West, Labour)
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State pension (transition) (SPT) and State pension (contributory) (SPC) are social insurance payments made when a person reaches 65 and 66 years of age respectively. They are both based on the person's social insurance record (PRSI) from employment or self employment.

To qualify a person needs to (a) enter insurable employment by age 55 for SPT and age 56 for SPC, (b) have paid 260 full rate social insurance contributions and (c) have a yearly average contributions of at least 10 for SPT and at least 24 for SPC. A person must be retired from employment to qualify for SPT and the payment ceases at age 66 when the claimant transfers to SPC. The yearly average determines the weekly rate of payment. Class S PRSI contributions which are payable by self-employed people are not reckonable for SPT and therefore, the changes proposed in this area will not apply to this cohort.

The challenges facing the Irish pension system are significant. There are currently six people of working age for every pensioner and this ratio is expected to decrease to approximately two to one by 2050. In addition, those aged over 65 will account for a greater proportion of the population while the proportion who are of working age is expected to decline. So the task of financing or increasing number of pensioners will fall to a diminishing share of the population. People are living longer and healthier lives and growing numbers of people want to work, or may need to work beyond State pension age. Recognising that State pensions are very valuable benefits, it is important to ensure that those qualifying have made a sustained contribution to the Social Insurance Fund over a working life thereby ensuring equity in the social welfare system.

In this context there are a number of pension reform measures planned:-

- The minimum paid contributions requirement for SPT and SPC will increase to 520 in April 2012 as provided for in legislation since 1997.

- As provided for in recent legislation, State pension age will be increased gradually to 68 years. This will begin in 2014 with the standardisation of State pension age at 66 and SPT will no longer be payable to those who reach age 65 in 2014 or later. State pension age will be increased to 67 years in 2021 and to 68 in 2028.

- A 'total contributions approach' to State pension will be adopted to replace the current averaging system. The proposed date for its introduction is 2020. Under this system, the level of pension paid will be directly proportionate to the number of social insurance contributions made by a person over his or her working life. This change reflects the potential that people now have to accumulate contributions as a result of the comprehensive nature of social insurance coverage which has been in place for 20 years, and the growth in the labour force over that period. Accordingly, a total contributions requirement of 30 years' contributions for a maximum pension will be introduced. Under the new approach, a minimum rate of State pension (contributory) (SPC) will be payable at one third (10/30ths) of the maximum rate, which will be 30/30ths.

A further reform measure was announced in Budget 2012 providing for a change to the rates bands for SPT and SPC which is being introduced from September 2012. From then, the rate band of between 20 and 47 (24 and 47 for SPT) yearly average contributions will be replaced with new rate bands of between:-

(i) 40 and 47 yearly average contributions

(ii) 30 and 39 yearly average contribution and

(iii) 20 and 29 yearly average contributions.

Therefore, the rate of SPT or SPC paid to new applicants will be appropriate to the average number of contributions paid over a working life. Those who have fewer contributions will receive a lower rate of pension. The maximum rate is unchanged as is the rate for those with yearly average contributions of between 40 and 47. While existing pension recipients are unaffected, the changes proposed will apply to new claimants from September 2012.

Claimants who qualify for a reduced rate of SPT or SPC and who have income needs may qualify, depending on their means, for another social welfare payment. Details of the new rates bands for SPC are set out in the tables below.

The measures outlined support the social contract between the State and the individual whereby those who pay most in a working life benefit most in retirement.

Changes to Rate Bands