Leo Varadkar (Dublin West, Fine Gael) | Oireachtas source

Expenditure on pensions, at approximately €7 billion, is the largest block of expenditure in my Department. It represents some 35% of all expenditure. Demographic change alone increases this by about €200 million each year. Maintaining the value of the State pension is critical to providing a basic income for pensioners and protecting older people from poverty. For this reason, the Government is committed to increasing the State pension at a rate greater than the rate of inflation every year.

The State pensions system comprises a number of schemes based on criteria such as contributions paid, income need and other factors. These ensure that people have an adequate standard of living in old age. The non-contributory State pension is means-tested and funded from general taxation. PRSI contributions are not taken into account in calculating the value on this pension. It is based solely on means.

The contributory State pension is another scheme. It is assumed the Deputy is referring to this pension. It is funded through the Social Insurance Fund. Contributions go in from PRSI paid on income and funds go out in the form of benefits such as maternity benefit, paternity benefit, illness benefit and, of course, the State pension. Income must match or exceed outgoings for it to be sustainable. Therefore, recognising credits or other non-monetary contributions is problematic as people want their pension and benefits paid in cash and not credits or recognition. The rate of payment is related to contributions made over the years into the Social Insurance Fund. As such, those who have paid more into the fund are more likely to receive more out of the fund under the scheme. This is known as the contributory principle. What is paid out is linked to what is paid in.

The actuarial review of the fund in 2012 confirmed that the fund on balance and taking everything into account provides better value to female rather than male contributors due to the redistributive nature of the fund. Put simply, women tend to pay less into the fund but tend to live longer and thus are able to claim more

Entitlement to the contributory pension is calculated by means of a yearly average calculation, where the total contributions paid or credited are divided by the number of years of the working life. Payment rates are banded. For example, someone with a yearly average of 48 contributions will qualify for a full pension, whereas someone with a yearly average of 20 may qualify at the 85% rate.

The State recognises those with caring roles to qualify for a contributory State pension. The homemaker’s scheme makes qualification for the contributory State pension easier for those who take time out of the workforce for caring duties. The scheme was introduced in 1994 and allows up to 20 years spent caring for children under 12 years of age or incapacitated people to be disregarded when a person’s social insurance record is being averaged for pension purposes.

Given the valuable nature of the State pension, contributory, those who qualify under the homemaker’s scheme still need to fulfil the eligibility requirements for the scheme and have at least 220 paid contributions over the course of their working lives. This means they must work for approximately ten years during the course of their life, full time or part time.

Where someone does not qualify for a full rate contributory pension, he or she may qualify for a means tested non-contributory pension, amounting to 95% of the maximum contributory rate. Alternatively, if the person's spouse is a State pensioner, the most beneficial payment available to him or her may be an increase for a qualified adult, which amounts to up to 90% of a full contributory pension.

Work is under way to replace the yearly average system with a total contributions approach. Under the latter, the rate of pension paid will more closely reflect the total number of contributions made, rather than when they were paid. The position of homemakers is being carefully considered in developing the scheme. While it is expected that this approach to pension qualification will replace the current scheme from around 2020, this is a significant reform and considerable legal, administrative, and technical components will need to be put in place prior to its implementation. As with any change in rules, there will be winners as well as losers.

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