Gary Gannon (Dublin Central, Social Democrats)
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75. To ask the Minister for Employment Affairs and Social Protection if her attention has been drawn to the possible effects on pensioner poverty of the proposed total contributions approach, given that it deals on a pro rata basis with people who do not qualify for the maximum payment, rather than using bands which serve to uplift the benefit people receive, as under the current averaging system; and if she will make a statement on the matter. [25023/23]

Gary Gannon (Dublin Central, Social Democrats)
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I ask the Minister for Social Protection if her attention has been drawn to the possible effects on pensioner poverty of the proposed total contributions approach, given that it deals on apro ratabasis with people who do not qualify for the maximum payment, rather than using bands which serve to uplift the benefit people receive, as under the current averaging system; and if she will make a statement on the matter.

Heather Humphreys (Cavan-Monaghan, Fine Gael)
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The State pension is the bedrock of the pension system in Ireland. It is extremely effective at ensuring that our pensioners do not experience poverty. This Government is committed to ensuring that this remains the case for current pensioners, those nearing State pension age and today’s young workers, including those who are only starting their careers. One of the landmark reforms to the State pension system 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, which removes existing anomalies with the yearly averaging system, will calculate the 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 zero over ten years and the proportion accounted for by the total contributions approach increasing commensurately. We are phasing it in over ten years. Officials in my Department are currently working on the legislation and the systems to support the introduction of this change, which will be effective from 2024. For those who will not receive the maximum rate of payment, the non-contributory State pension will remain available. The means-tested payment can be paid at up to 95% of the contributory pension. Alternatively, they may qualify for an increase for a qualified adult based on their own means, amounting up to 90% of the contributory pension where their spouse has a contributory pension. I hope this clarifies the matter for the Deputy.

Gary Gannon (Dublin Central, Social Democrats)
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No, not really. I realise I am stating the obvious in saying that paying a lower State pension to a larger number of pensioners would lead to higher levels of poverty among older people in this country. However, I have to say it, because we fear that is what will happen under the total contributions approach. There is a certain minimum amount of money that older people need to retire with dignity. Acknowledgement of this fact was presumably behind the design of the current pension system where the tapering off of the payment is much less severe than it would have been under the straightforward pro ratasystem. Now we are bringing in a pro ratasystem and I do not hear any discussion about the repercussions for older people. I can email the Minister an example of a calculation I have done where someone working for 20 years would see their pension under the total contributions approach halved compared to what it would be under the current system. That person would not be alone. Most people are totally unaware this change is coming and some are unaware of what it means for them.

Heather Humphreys (Cavan-Monaghan, Fine Gael)
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As the Deputy knows, when this Government was formed we established the Pensions Commission to look at the whole area of pensions. Countries all over the world are grappling with how to meet pension costs into the future; one only has to look at what happened in France a few weeks ago. After the Pensions Commission completed its work, I secured Government approval for a range of measures on pensions. We are keeping the State pension age at 66 so anybody who wants to retire at this age will be able to do that. In order to pay for that, there will need to be incremental increases in PRSI rates. We are introducing new flexibility so that people who want to work for longer will be able to do so. That will be particularly attractive for people who want to improve their contribution record in order to qualify for a higher pension. We will provide a pension to long-term carers and then will move gradually over a ten-year period to the total contributions approach. That was a key recommendation of the Pensions Commission. I am happy to accept it because it is the fairest way to calculate a pension. Under the current system, a person could start working at 55, work until 66 and get a full pension. On the other hand, you could have a person who worked for 30 years, had gaps in their contribution record and they would qualify for a smaller pension. I do not believe that is fair.

Gary Gannon (Dublin Central, Social Democrats)
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How many people start working at 55? I do not think that is a fair analysis.

Older people in Ireland usually have the lowest rates in poverty and deprivation of any age group. The State pension is solely responsible for this. At any one time, 85% of older people in Ireland would live below the poverty line if it were not for the State pension. Even for better off pensioners who do not rely solely on the State pension, the State pension is usually the most important single source of income in their retirement. The current system recognises that. That is why people who have only paid half the PRSI weeks they would need for a full pension, only lose out by €40. That is recognition of the fact that half the pension just would not be enough on which to even survive, never mind live. I strongly urge the Minister and the Department to proceed cautiously with any system change.

I would love to know about the analysis done by the Minister to this point. Will she release that analysis in terms of its ramifications because I do not think there are many examples of a person starting work at 55 and being able to claim a pension at 66? There is a bit of hyperbole brought into that analysis and I would like to see a stronger calculation analysis.

Heather Humphreys (Cavan-Monaghan, Fine Gael)
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There could be a case where somebody did not pay any PRSI - was self-employed or for whatever reason - who then started paying PRSI ten years before their pension age and then got a full pension. I do not think that is fair. The total contributions approach will do what it says on the tin. A person's pension will be based on the number of contributions he or she paid in. It is going to happen gradually so over a ten-year period, the yearly average approach will be gradually weaned out and that minimises the impact for people.

Existing pensioners will remain as is. It will only happen to new pensioners and will not start until 2025, so it will be 2035 by the time the yearly average approach has been phased out completely. That is 12 years away. At the minute, a pensioner gets whichever is most favourable, whether it is the total contributions or the yearly average. The total contributions approach is fairer. Phasing out the yearly average approach was recommended by the Pensions Commission and, together with increases to PRSI, the measure will help us keep the pension age at 66.