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

Expenditure on pensions, at approximately €7.3 billion, is the largest block of expenditure in my Department, representing 37% of its expenditure. Demographic change, such as longer life expectancy which is welcome of course, alone increases this by €220 million every year. Maintaining the rate of the State pension and its value is critical to protecting older people from poverty. Poverty rates in Ireland for older people at about 2% are among the lowest in the world.

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 State pension contributory is one such scheme and its rate of payment is related to contributions made over the years into the Social Insurance Fund, which fund the scheme on a pay-as-you-go basis. As such, those who have paid more into that fund are more likely to be paid more under that scheme. The independent actuarial review of the fund in 2012 confirmed that the fund provides better value to female rather than male contributors on average, due to the redistributive nature of the fund.

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 duration in years of the working life. Payment rates are banded. For example, someone with a yearly average of 52 weekly contributions will qualify for a full pension, whereas someone with a yearly average of 20 may qualify at the 85% rate.

The homemaker's scheme makes qualification for State pension contributory easier for those who take time out of the workforce for caring duties. The scheme, which was introduced in 1994, allows gaps of 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. Homemakers still need to fulfil the eligibility requirements for that scheme, and have paid at least 220 weekly contributions. The scheme is not retrospective, and backdating it in respect of periods before its introduction in 1994 would cost an estimated €290 million every year.

A person who does not qualify for a full-rate contributory pension may qualify for a means-tested non-contributory pension, amounting to 95% of the maximum contributory rate. For example, a person with a yearly average of 20 qualifies for a reduced rate SPC of €202.80. However, unless their means are over €52.50 per week, or €105 for a married couple, they may instead be paid a non-contributory pension of at least €204.50, which would bring their total personal means, including their pension, to over €257 per week.

Their household means test ignores their spouse's State pension, the capital value of their home and has generous income and capital asset disregards where applicable. This €257 does not include rent allowance, household benefits or fuel allowance.

Alternatively, if their spouse is a State pensioner and they have significant household means, their most beneficial payment may be an increase for a qualified adult, IQA, based on their personal means, which amounts up to 90% of a full contributory pension. Work is under way to replace the yearly average system with a total-contributions approach. Under this approach, the rate of pension paid will more closely reflect the total number of contributions made by people, not when they paid them.

The position of homemakers is being carefully considered in developing this new system of calculating the contributory State pension.

It is expected that this approach to pension qualification will replace the current one from 2020. Following completion of the actuarial review of the Social Insurance Fund later this year, a refined proposal will be developed. My Department will conduct a period of consultation with relevant stakeholders, including interest groups, representative bodies and the Oireachtas. Following the consultation period, I will submit a proposal to Government seeking approval for the new approach.

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