Simon Harris (Wicklow, Fine Gael)
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Question 98: To ask the Minister for Social Protection the plans under review by her regarding proposed changes to the State contributory pension; the impact that these changes would have on prospective future payees; and if she will make a statement on the matter. [5674/12]

Joan Burton (Dublin West, Labour)
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The challenges facing the Irish pension system are significant. There are currently six people of working age for every pensioner and this ratio is expected to decrease to approximately two to one by 2050. In addition, those aged over 65 will account for a greater proportion of the population while the proportion who are of working age is expected to decline. With increases in life expectancy, more people are living to pension age and living longer in retirement. The period for which an average pension will be paid will be greater than the period for which a pension is paid at present. This has obvious and significant implications in relation to the future costs of State pension provision.

There are two categories of contributory State pension:- State pension (transition) (SPT) payable at age 65 and State pension (contributory) (SPC) payable at age 66.

The qualifying conditions for State pension (transition) require the applicant to

· have entered insurable employment before attaining the age of 55 years.

· have at least 260 full-rate social insurance contributions paid since the date of entry into insurance.

· Have a minimum yearly average of 24 contributions (paid or credited) since the date of entry into insurance.

· have retired from work.

State pension (transition) ceases at age 66 when the claimant transfers to (SPC).

The qualifying conditions for State pension (contributory) require the applicant to

· have entered insurable employment before attaining the age of 56 years.

· have at least 260 weeks full-rate contributions paid, from employment or self-employment, since entry into insurance

· Have a minimum yearly average of 10 contributions (paid or credited) since the date of entry into insurance.

The planned changes are as follows:

The minimum paid contributions requirement for SPT and SPC will increase to 520 in April 2012 as provided for in legislation since 1997.

As provided for in recent legislation, State pension age will be increased gradually to 68 years. This will begin in 2014 with the standardisation of State pension age at 66 and SPT will no longer be payable to those who reach age 65 in 2014 or later. State pension age will be increased to 67 years in 2021 and to 68 in 2028.

A 'total contributions approach' to State pension will be adopted to replace the current averaging system. The proposed date for its introduction is 2020. Under this system, the level of pension paid will be directly proportionate to the number of social insurance contributions made by a person over his or her working life. This change reflects the potential that people now have to accumulate contributions as a result of the comprehensive nature of social insurance coverage which has been in place for 20 years, and the growth in the labour force over that period. Accordingly, a total contributions requirement of 30 years' contributions for a maximum pension will be introduced. Under the new approach, a minimum rate of State pension (contributory) (SPC) will be payable at one third (10/30ths) of the maximum rate, which will be 30/30ths.

As announced in Budget 2012, a change to the rates bands for contributory pensions is being introduced from September 2012. This supports the policy objective of aligning the proportion of pension paid with the person's contribution to the PRSI system over a working life. This policy needs to be adhered to if we are to be able to fund pensions into the future. Currently a person with an average of 20-47 PRSI contributions per year over their working life receives a weekly State pension of only €4.50 less than a person with a yearly average of 48 or more PRSI contributions, a situation which is neither fair, equitable nor sustainable.

With effect from September 2012, the rate band of between 20 and 47 yearly average contributions will be replaced with new rate bands of between:-

(i) 40 and 47 yearly average contributions

(ii) 30 and 39 yearly average contribution and

(iii) 20 and 29 yearly average contributions.

Therefore, the rate of State pension paid to new applicants will be appropriate to the average number of contributions paid. Those who have fewer contributions will receive a lower rate of pension. The maximum rate is unchanged as is the rate for those with yearly average contributions of between 40 and 47. Existing pension recipients are unaffected and any changes will only apply to new claimants from September 2012. A person qualifying for State pension in July 2013 will be assessed using the new rate bands. Claimants who qualify for a reduced rate of State pension (contributory) may qualify for a higher rate of State pension (non-contributory).

The measures outlined above support the social contract between the State and the individual whereby those who pay most in a working life benefit most in retirement.

Details of the new rates bands for both State pension (transition) and State pension (contributory) are set out in the following tables.