Heather Humphreys (Cavan-Monaghan, Fine Gael) | Oireachtas source

As I have said, a possible approach to pensions indexation is under consideration. That uses what can be described as a smoothed earning system whereby the rate of pension would be linked, in the first instance, to a percentage of average earnings. In years when application of the benchmark rate is less than the rate of increases in prices, it would be linked to the rate of inflation.

That system addresses the two key challenges faced in the indexation system. The first is that a benchmark link to just one measure, for example, prices, can result in a widening of the gap between the incomes of people dependent on State pensions and other people in society. On the other hand, systems which use multiple benchmarks, for example, the so-called twin lock systems, can generate a ratchet effect, whereby increases in pensions outstrip both prices and wages, ultimately converging on and potentially overtaking wage levels. There is some work to be done on this. There is no point in saying otherwise, but we will continue with that work.

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