Joan Burton (Dublin West, Labour) | Oireachtas source

The averaging system is a winner for some people and a loser for others. Were we to move to a total contributions system, which is much clearer in the context of current participation in the labour force, that would also benefit some people while others would lose out. Our main requirement is to have sustainable pensions.

The yearly average test has existed since 1961, when contributory pensions were first introduced. However, back in those days many men in particular started work from the age of 16 onwards and in some cases they began work at 14. There were fewer women in the labour force. They started at 16 and often left when they married.

One is almost talking about a different employment landscape. Nowadays, we have much higher rates of participation by women in the labour force. The scheme was designed to ensure that people could qualify for contributory pensions immediately and to suit a system where the social insurance coverage was limited. There were far fewer numbers at work and even in 1961, the model was still largely that of the male breadwinner rather than the double-income family or the variations we have nowadays.

The social insurance system is now very comprehensive and long-established and there are anomalies associated with the averaging system. Somebody who started working at 16 could find that if they retired at 66 and had some gaps which were not the subject of credits, they could have many contributions but end up with less. This is probably one of the more arcane features of the pension system. For that reason, it has been considered for a long period of time that the average yearly test is no longer a suitable arrangement. It has been decided to begin implementing a total contributions approach. This has been highlighted in all those green papers and study papers to which I referred going back to the 2000s and earlier. The pension paid will be proportionate to the number of social insurance contributions made by a person over his or her working life and 30 years contribution will be required to qualify for a maximum pension. The green paper on pensions considered that 40 years would not be an unreasonable target to set for a maximum pension but we have gone for 30 years. In recognition of the fact that gaps in coverage resulting from the early structure of the social insurance system are still evident in the records of people qualifying for a pension, it was decided not to implement the switch to total contributions immediately but to allow a reasonable lead-in time of ten years. That review was in 2010 so the ten-year period will be until 2020. This date is under review and can be reviewed.

The Department has no discretionary legislative provisions that could facilitate the disregard of early periods of employment regardless of the temporary or informal nature of the employment. From a PRSI policy perspective, there are no plans to introduce measures that would disregard periods of early employment. I am not sure members want ministerial discretion on these issues because we want to keep a contributory system that is well-funded where people know the rules rather than feel that they could get a rule entirely for themselves by going to the particular Minister of the day. I am not unsympathetic to people who feel they have lost out but if one has a contributory system, one must have it for people in the country as a whole. With regard to worries about people being impoverished as they grow older, the real fallback is the non-contributory system at the same rate. If they are not people of significant means or they have a spouse of significant means and rely on the State pension for their income, they can fall back on the non-contributory system. That is what really guards against people falling into poverty.