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

Currently, all applicants for the contributory State pension have their entitlement assessed under the yearly average method and the interim total contributions approach, receiving the payment that is most beneficial to them. The yearly average method has been in place since the introduction of the contributory pension in 1961 and calculates the average number of social insurance contributions per year, with payments made on a banded basis. Up to 20 years of disregards can be applied under the homemaker's scheme. However, it can result in anomalies. The interim total contributions approach was introduced in January 2018. It simply adds paid and credited contributions together. Some 2,080 contributions, equivalent to 40 years, are required for a full rate payment, with pro ratapayments for those who have the minimum required 520 paid contributions but less than 2,080. Up to 20 years of home caring periods can be claimed for time spent providing full-time care to children under 12 or people aged over 12 who require an increased level of full-time care.

One of the landmark reforms to the State pension system which I announced last September is a ten-year phased transition to the total contributions approach and the abolition of the yearly average method. This fairer system will calculate pension payments based on the number of social insurance contributions made by a person over his or her working life, with significant pension credits granted to people who have taken time out of the workplace for caring responsibilities. During a transition period, individual pension rates will be based on the best of the total contributions approach or a rate based on a mix of the yearly average and total contributions approaches, with the proportion accounted for by yearly average reducing from 90% to 0% over ten years and the proportion accounted for by the total contributions approach increasing commensurately. Officials in my Department are currently working on the legislation and systems to support the introduction of this change, which will be effective from 2024. I hope this clarifies the matter for the Deputy.

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