Damien English (Meath West, Fine Gael) | Oireachtas source

I thank Senator James Reilly for raising this issue. The Minister, Deputy Regina Doherty, could not make it here today and sends her apologies. She has asked me to reply.

The State contributory pension is primarily for people with sustained contributions towards the social insurance fund, which is financed by PRSI on a pay-as-you-go basis. It rewards such contributions with greater entitlements and coverage for a range of benefits, including contributory pension entitlements. Entitlement is calculated according to a yearly average, whereby the total contributions paid or credited is divided by the number of years of one's working life. Since the contributory pension was introduced in 1961, the yearly average contributions test has been used in calculating the level of pension entitlement. The total contributions paid or credited is divided by the number of years of the working life from a person's entry into insurable employment up to the year prior to his or her reaching State pension age.

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 will qualify for a pension at 85% of the full rate. The purpose of this is to give higher pension entitlements to those who have made more sustained contributions.

The current rate bands applying to the State contributory pension were introduced from September 2012, replacing previous rates introduced in 2000. These rate bands more accurately reflect the social insurance contributions history of a person. Before the introduction of the current rate bands, a person reaching retirement age, having paid a yearly average of 47 contributions out of a maximum of 52, only qualified for the same rate of payment as someone with a yearly average of 20 contributions, regardless of his or her much more significant PRSI contributions record. A person with a maximum of 52 of contributions, paid every year of his or her working life, received a weekly State pension of only €4.50 more than someone with a yearly average of 20 PRSI contributions. This did not seem equitable, and the new bands were introduced to more closely reflect a person's contribution history. Reversing the rates of these bands to the same percentages as were in place between 2000 and 2012 would carry an estimated total cost of approximately €73 million extra in 2018, and this amount would increase by an additional €10 million to €12 million extra each year thereafter. This is a significant cost that, if provided for, would obviously impact on other areas or items of expenditure.

Even with the changes in 2012, the rate bands are still highly re-distributive. For example, someone with only a 40% social insurance record gets an entitlement at 85% of the maximum contributory rate. It is the experience of the system that where a person gets a reduced contributory pension, he or she may generally be paid a higher rate under another scheme unless he or she has significant personal means. For example, he or she may qualify for the non-contributory State pension at up to 95% of the maximum State contributory pension rate or may qualify for an increase for a qualified adult payment, which is up to 90% of the maximum contributory rate.

The term "marriage bar" describes a rule that existed in most of the public service and some private sector employments, whereby women were required to leave their employment upon marriage. This practice was abolished in 1973 when Ireland joined the EEC. It is worth remembering that most public servants recruited prior to 1995 paid a reduced PRSI rate and so they are not generally entitled to the State pension. In such cases, the marriage bar would not be expected to have impacted on State pension entitlement, as they would not have qualified for that payment had they remained in public sector employment. As the "marriage bar" was a rule rather than a legal prohibition, married women affected by it could take up other employment, and in that way could have qualified for a State pension had they wished.

It is expected that the total-contribution approach, TCA, will replace the yearly average approach for new pensioners from 2020. The aim of this approach is to make the rate of contributory pension more closely match contributions made by a person. An important element in the final design of the scheme will be the position of women who have gaps in their contribution records as a result of caring duties. The Minister for Employment Affairs and Social Protection, Deputy Regina Doherty, intends to finalise a proposal on this before the end of the year and then engage in public consultation that will provide an opportunity for people to submit their views on it. The Minister understands the concerns of the Senator, and I am informed that she has asked her Department to prepare a report on the 2012 rate bands issue as soon as possible to determine what options may be available in dealing with the issues and the likely costs involved. The Minister will be bringing the report to the Government as soon as it is ready. I do not have any further news on the timeline for the Senator just yet.