Helen McEntee (Meath East, Fine Gael) | Oireachtas source

Taking into account the views of Deputies on this debate so far tonight, I want to reiterate the Government's recognition of the need for fairness and equity in the provision of State pensions and the importance of the issues raised. The State pension system is of primary importance in the provision for the old age of our citizens. There are approximately 680,000 persons over 66 expected to benefit from State pension payments next year. Regardless of work history, breaks in employment or years out of the workforce, the State non-contributory pension provides a basic level of income. There are generous disregards in this means-tested pension which means that pensioners are protected against poverty. The State contributory pension is a social insurance based scheme for those who have contributed to the PRSI system. It is complex and while it has pros and cons, some of these stem from the history of the State pension system and the type of society it was devised in.

As we all know, Ireland of 2017 is very different to the Ireland of 1961 and the breadwinner model on which the State pension was based. Women's participation in the workforce has changed radically over the intervening decades. Spending on State pensions has increased rapidly in recent decades. This year, the cost is €7.3 billion. This is estimated to increase by €1 billion every five years due the increase in pensioners. These projections mean that there are big sustainability and affordability challenges in the years ahead and we must start to address them now. The State contributory pension comes from the Social Insurance Fund which is funded on a pay-as-you-go basis. That means workers of the day pay for the pensions given to older people. The policy choices we make today must be made carefully so that we can continue to pay good State pensions in the future. The Government wants to combine increases in the rates of pensions with reforms that make the system sustainable for future pensioners. The motion, which proposes to make changes to the State pension, would cost €70 million next year to reverse the rate band changes and €290 million to backdate homemakers' disregards prior to 1994. This is a very significant amount of money and would increase in every following year as the number of pensioners increases. To do all this would undermine the affordability and sustainability of pensions in the medium term and will not allow for the wider structural reforms that are needed, such as the total contributions approach which was mentioned earlier.

When the contributory pension was introduced in 1961, a yearly average approach was used for calculating entitlements. The reason was that, as reckonable social insurance had just been introduced eight years previously, no-one would have had the 30 to 40 years of contributions necessary to be paid under a total contribution approach. However, the yearly average approach would allow many people to qualify for a full pension quickly. With the extension of PRSI over the years, notably to self-employed and farmers in 1988, a total contributions approach can be used from around 2020 without disadvantaging people in those sectors. They will have had a 30 year window to accumulate contributions. The main difficulty with the yearly average approach is that it is possible for people to start paying social insurance much later in life and still qualify for a pension at the maximum rate. This is not very fair on those whose pension payments are more proportional to their contribution to the system. The total contributions approach reform will remove this unequal outcome.

The yearly average system resulted in reduced pensions for those who had taken time out of the workforce to look after their families. The homemaker's scheme was introduced from 1994 to alleviate that. It makes qualification for the contributory State pension easier for those who take time out of the workforce for caring duties. It allows caring or homemaking gaps of up to 20 years to be disregarded from 1994 when a person’s social insurance record is being averaged. Backdating the homemaker's scheme at the time to include periods before 1994 would have been extremely expensive and there would have been much less money for improvements in pensions for more people. Backdating the scheme now would still be costly, at an estimated €290 million.

The rate bands of the State pension contributory have been discussed in great detail. The current rate bands applying to the State pension contributory were introduced from September 2012, replacing previous rates introduced in 2000. It must be pointed out that rate bands prior to 2000 were less generous, and the improved rate bands introduced in 2000 were a feature of the economic and political environment at that time. The economic crash changed the focus and the core rates of the pension, which many other pensioners were solely dependent on, were not reduced. Instead, the rates for people who had additional means and lesser PRSI contribution records, were reduced. The 2012 rate bands more closely reflect the social insurance contributions history of a person than those in place between 2000 and 2012. The current rate bands still provide pensions to people which are not proportionate with their level of contribution. A person with only 20 years of contributions over nearly 50 years will still get an 85% pension. Had all pensions been cut, regardless of means and contribution records, the hardest hit would have been pensioners with no additional incomes, those paid a State pension non-contributory, and widows and widowers living alone on only one pension payment. A significantly higher proportion of such pensioners are women and such an approach would have affected them badly. People on the lower rate bands with other income which meant they did not qualify for a non-contributory pension, which is 95% of the contributory pension, are generally in a better financial position than those solely dependent on the non-contributory pension, as otherwise they could claim that payment instead. Changing these bands would give additional money to people who already had means and nearly 40% of those are men. It is estimated that to revert to the previous bands from January 2018 would result in an annual cost of over €70 million in 2018, and this annual cost would increase by an estimated €10 million each following year.

It is intended to introduce the total contributions approach replacement for new pensioners. This will make the rate of contributory pension more closely match contributions made by a person. The position of women who have gaps in their contribution records as a result of caring duties will be considered very carefully when developing the new model. A public consultation is planned on this reform, and this will provide an opportunity for people to submit their views on what they want to see in this reform. It must be noted that the pension system is very effective in protecting both men and women from poverty and social exclusion. The average pension payments made to men and women over 66 years of age are within approximately 1% to 2% of each other and figures from the CSO show that while 2.9% of men over 65 are in consistent poverty, only 2.6% of women in that age category are in consistent poverty. EU statistics also show that the gender gaps among the elderly in Ireland are much narrower than across the European Union. Among those over 65 at risk of poverty and social exclusion, the gap in Ireland, of 2.1%, is half the gap across the European Union.

The main aim of Government policy on pensions is to make sure that pensions are affordable, sustainable and keep their value in the coming years. The reforms that are planned will result in a more inclusive and fairer pension system for all citizens. The Minister has acknowledged the need to examine how many people, mainly women, who spent time out of the workforce for child-rearing and caring duties are impacted by the current system. I ask that consideration be given to allow time for this examination to take place so that a fair approach can be developed to tackle the issues debated here. Any changes need to be effective, fair and proportionate and in line with the reforms planned.

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