Fiona O'Loughlin (Kildare South, Fianna Fail)
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There is an anomaly in the calculation of the entitlement to the State pension. I put it to the Minister for Social Protection that there is ongoing discrimination against those who have taken time out of their careers to care for children, elderly family members, etc. The practical reality of it is that women are impacted. Since I was elected, women have been calling to my office to tell me of their shock on realising that the payment they will receive from the State on turning 66 years of age will be considerably lower than they had planned. There are many injustices in life and many of the stories I have heard are significant. One lady, on her 66th birthday, realised she would receive €152 rather than €233 a week, a significant shortfall of approximately €80 a week.

What is the country saying to those who selflessly put their careers on hold in order to stay at home to care for their children or elderly parents? They are providing vital social services and doing the State a huge service. In many cases, they are caring for those vulnerable members of society who may otherwise have ended up in care and costing the State considerably more than €80 a week. I recently spoke to another lady who is losing €30 a week because she worked for two weeks before she became a stay-at-home mother and then subsequently returned to work. She is facing her retirement years on her own and is being penalised financially for caring for her family. If she had not worked for those two weeks prior to raising her family, she would now be financially better off.

Another lady started working in 1966. There were years when she had more than 80 contributions, but only 52 of them are counted. She took time out to raise her children, but her average contributions were calculated over the period 1966 to 2015. As a result, she has an average of 25 contributions per year. She receives €196 instead of €230. To add insult to injury, when the pension increased by €3 she received €2.60. She will be insulted again in springtime when she does not receive the full €5 increase.

So far, it has generally been women that have been affected by this anomaly. How can we move forward in encouraging an equal place for women in the workforce when such open discrimination takes place? This type of inequality cancels out family-friendly policies that may be in place. The Minister for Social Protection must reform the manner in which these pensions are calculated. We must value the contributions these women have made to society and ensure they are not penalised and confined to poverty on retirement. There are many more of these cases. I hear of them on a weekly basis. The Minister must reform the manner in which the contributions are calculated.

Leo Varadkar (Dublin West, Fine Gael)
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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.

Fiona O'Loughlin (Kildare South, Fianna Fail)
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I am pleased to note work is under way to replace the yearly average system and I hope the new system will be more equitable. The Minister's statement that those who pay more into the pension fund are more likely to receive pay-outs under the scheme is not necessarily correct. Under the averaging system for pensions, specifically the measure introduced by the Minister's predecessor, Deputy Joan Burton, a person who enters the social insurance system just before his or her 56th birthday and pays stamps for ten years will be entitled to a full pension, whereas many of those who pay stamp contributions amounting to 20 years, albeit over a longer period, will be entitled to less than a full pension. It is patently unfair that a higher pension will be available to a person who has made fewer contributions than others.

Women who have spent a large portion of their lives providing a socially vital service are being doubly penalised. Not only do they not have recourse to a private pension entitlement for the period in question, but they are also being denied a full State pension. The homemaker's scheme introduced by the Fianna Fáil Party in 1994 must be reviewed and a feasibility study done on extending eligibility to years spent caring for children before 1994. The Government must also consider the possibility of amending the calculation method used in respect of the contributory pension. Consideration should be given to disregarding past payments, thereby altering the date on which an individual is considered to have entered the workforce.

Leo Varadkar (Dublin West, Fine Gael)
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There are two aspects to this issue. The rules we apply to working out a person's contributory pension entitlement are gender blind. As such, it does not matter whether an applicant is a man or woman because the same rules apply to both genders. While it is less common, men also have caring roles.

The Deputy is correct that there are gender gaps. However, as the independent actuarial analysis shows, when one takes everything into account the gender gaps tend to benefit women more than men because the former tend to live longer and are paid more from the pension fund as a result. Moreover, they generally pay less into the fund because they tend to work fewer years, often at lower pay rates. Some people want gender gaps to be closed when it would benefit one gender to do so, while conveniently overlooking such gaps when they benefit a different gender. I am not accusing the Deputy of adopting this position but it is the case that others are conveniently gender blind, depending on which gender is affected by an issue.

The only way to completely eliminate gender gaps would be to have different rules for men and women and I would not like to take such an approach. In fairness to the Deputy, she has not proposed such an approach. I acknowledge, however, that the pensions system needs to be reformed because it is based on working patterns that no longer exist in the modern economy. We are trying to replace the averaging system with a new system known as the total contributory approach, under which the main criterium will be the number of contributions a person makes, rather than when he or she makes them.

The Deputy is correct that it is unfair that a person can work for the final ten years before retirement age and receive a full pension, while a person who works for 15 or 20 years over a 40-year period may not receive a full pension. The difficulty is that any change will create losers and winners. It is in the nature of these things that one only hears about the losers when they discover they have lost out. Before introducing a reform, I want to have a detailed analysis done of all the individual cases in order that we can have a profile of who will be the winners and losers in the event of a change.