Willie O'Dea (Limerick City, Fianna Fail)
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45. To ask the Minister for Social Protection if he will address the anomaly in the calculation of the contributory pension which tends to disadvantage those who took time out of the workforce to care for children or relatives; and if he will make a statement on the matter. [36086/16]

Willie O'Dea (Limerick City, Fianna Fail)
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This problem has been well ventilated. We are all aware of the unfairness in the contributory old age pension system whereby people who have paid fewer contributions can often get a higher pension than people who have paid a greater number of contributions. We discussed the issue last week on Committee Stage of the Social Welfare Bill and we will be discussing it again tomorrow. I just want to find out how far the Minister has advanced with the study he is carrying out on the matter in his Department.

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, representing some 35% of its expenditure. Demographic change alone increases this by about €200 million a year. Maintaining the rate of the State pension is critical to protecting older people from poverty. Entitlement levels are 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 so, for example, someone with a yearly average of 48 contributions will qualify for a full pension, whereas someone with a yearly average of 20 will qualify for a pension at 85% of the full rate. The homemaker’s scheme was introduced in 1994 to make qualification easier for those who took time out of the workforce for caring duties. It allows up to 20 such years, in the period since its introduction, to be disregarded when their record is being averaged for pension purposes.

The cost of extending the homemaker's scheme to allow people to avail of the full 20 years currently allowed under the scheme, encompassing periods prior to 1994, is estimated at a potential cost some €290 million in 2017. The cost of any such backdating would have to be borne by existing PRSI contributors, that is, working people aged under 66 and their employers - by increasing PRSI.

Where someone does not qualify for a full rate contributory pension, they may qualify for an alternative payment. If his or her spouse has a contributory pension, he or she may qualify for an increase for a qualified adult amounting to 90% of a full-rate pension, which by default is paid directly to them. Alternatively, he or she may qualify for a means-tested State pension, which amounts up to 95% of the maximum contributory rate.

It is planned that a total contributions approach will replace the yearly average approach from around 2020, and the position of homemakers will be carefully considered in the context of that reform. Officials from my Department are currently working on the detailed development of the total contributions approach with a view to making proposals for consideration in the first half of next year.

Willie O'Dea (Limerick City, Fianna Fail)
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As the Minister said, the system already disregards time spent working in the home since April 1994 for the purposes of calculating the yearly average contributions. The problem arises in respect of people who took time out before 1994. Does the figure of €290 million refer to the cost of back dating to the very beginning? If he is moving to a total contributions approach, is it inevitable that there will be losers as well as winners? I can envisage a situation where under a total contributions approach, a person who had been paying for the past ten years and who has paid 520 contributions could find their pension considerably reduced. Of course, it would be a fairer system but we are anxious to ensure that there are as few losers as possible. If the Minister is looking at a total contributions approach, where does that leave the question of credits and what will happen in respect of the homemaker's scheme as it exists at the moment? Will there be some recognition of time spent in the home in a total contributions system?

Leo Varadkar (Dublin West, Fine Gael)
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The figure of €290 million is the maximum amount estimated so that would be the case if we took existing pensioners and recalculated what they might be entitled to under a new set of rules. There would almost certainly be demands to do that. The rules could be changed prospectively but I think those who are already retired would want the rules changed for them as well. The Deputy is right in saying that any significant change to the rules does result in winners and losers. Even a change that makes it fairer would result in winners and losers. One could spend hundreds of millions of euro to make sure there are no losers at the pension end but, of course, that must then be paid for by existing PRSI contributors today. Working men and women, working fathers and mothers of today and their employers would have to foot the bill of anything that resulted from the change because of the way the social insurance system works, which is PRSI in and PRSI out. One thing that is under consideration, and the Deputy will see this when we are ready to produce the document, is replacing the homemaker's disregard with a homemaker's credit so one would count the number of years spent in the home looking after children or a sick relative as a credit.

Willie O'Dea (Limerick City, Fianna Fail)
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As the Minister will be aware, since the abolition of the retirement pension, people aged 65 and over who have been compulsorily retired have to apply for jobseeker's allowance initially for one year. I believe it will be two years when the pension age reaches 67. First, the amount is lower. Second, it has given rise to obvious difficulties. I know the same criteria do not apply. The test as to whether someone is actively seeking employment once they are over 65 is not as rigid. I raised this question with the previous Government and was told that an interdepartmental committee was looking at this to see if there was some way to solve it. Can the Minister give us any update on the deliberations of that committee?

Leo Varadkar (Dublin West, Fine Gael)
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There is no compulsory retirement age in Ireland so there is no law saying that anyone has to retire at a particular age. However, for some people, their contracts with their employers require that they retire at 65. Many, though not all, of those people are public servants. The interdepartmental group has already produced its report, which was published some months ago before the summer recess but, in my view, it was unsatisfactory in terms of providing an actual solution to this issue. My strong view is that at the very least for public employees, those who are now required to retire at 65 should not be required to do so. We should bring the age up to 66 and 67 in 2021. I have conveyed that view to the Minister for Public Expenditure and Reform and it is under discussion between the two of us. We cannot interfere in the contracts between private citizens and their private employers but I would have thought that at the very least for our employees in the public sector, we should make that change.