Brendan Griffin (Kerry South, Fine Gael)
Link to this: Individually | In context

Question 115: To ask the Minister for Social Protection the changes that are planned for the calculation of pension entitlements; and if she will make a statement on the matter. [13027/12]

Joan Burton (Dublin West, Labour)
Link to this: Individually | In context

State pension (transition) (SPT) and State pension (contributory) (SPC) are social insurance payments made when a person reaches 65 and 66 years of age respectively. They are both based on the person's social insurance record (PRSI) from employment or self employment. To qualify a person needs to (a) enter insurable employment by age 55 for State pension (transition) and age 56 for State pension (contributory), (b) have paid 260 full rate social insurance contributions and (c) have a yearly average contributions of at least 10 for State pension (contributory), and at least 24 for State pension (transition). The yearly average determines the weekly rate of payment.

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. So the task of financing increasing pensions will fall to a diminishing share of the population. People are living longer and healthier lives and growing numbers of people want to work, or may need to work beyond State pension age.

Recognising that the SPC is a very valuable benefit, it is important to ensure that those qualifying have made a sustained contribution to the Social Insurance Fund over a working life thereby ensuring equity in the social welfare system. By aligning the rate of pension paid with the contribution made ensures that those who contribute more during a working life benefit more in retirement than those with lesser contributions. It is important to link payment of pension to contributions paid over a working life as attachment to the workforce remains a key issue for the sustainability of pensions.

In this regard, a number of pension reform measures which will affect how pensions are calculated are due to be implemented this year. For the calculation of SPT and SPC there will be an increase in the minimum paid contribution required from 260 to 520 contributions in April 2012. This change has been provided for in legislation since 1997. A further reform measure was announced in Budget 2012 providing for a change to the rates bands for SPC which is being introduced from September 2012. From then, 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 SPC paid to new applicants will be appropriate to the average number of contributions paid over a working life. 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. While existing pension recipients are unaffected, the changes proposed will apply to new claimants from September 2012.

Claimants who qualify for a reduced rate of SPC and who have income needs may qualify, depending on their means, for a higher rate of State pension (non-contributory). Details of the new rates bands for SPC are set out below. Customers will be notified of their future entitlements when their claim is processed. In general, applications for SPT should be submitted at least 4-5 months before a person reaches his/her 65th birthday while applications for SPC should be submitted at least 4-5 months before reaching age 66. In advance of this a person can request a copy of their contribution records from the Central Records Section of the Department.

I understand that the person concerned will qualify for a full rate SPC reaching age 66 on 11 November 2012. She would not appear to qualify for SPT as she is self-employed and class PRSI contributions are not reckonable for SPT.

Changes to Rate Bands

Brendan Griffin (Kerry South, Fine Gael)
Link to this: Individually | In context

Question 116: To ask the Minister for Social Protection if changes for the calculation of pension entitlements will allow for wives of farmers and recognise their contributions as workers on farms; and if she will make a statement on the matter. [13028/12]

Joan Burton (Dublin West, Labour)
Link to this: Individually | In context

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. So the task of financing increasing pensions will fall to a diminishing share of the population. People are living longer and healthier lives and growing numbers of people want to work, or may need to work beyond State pension age.

Recognising that the State pension (contributory) is a very valuable benefit, it is important to ensure that those qualifying have made a sustained contribution to the Social Insurance Fund over a working life thereby ensuring equity in the social welfare system. By aligning the rate of pension paid with the contribution made ensures that those who contribute more during a working life benefit more in retirement than those with lesser contributions. It is important to link payment of pension to contributions paid over a working life as attachment to the workforce remains a key issue for the sustainability of pensions.

In this regard, a number of pension reform measures are due to be implemented this year:

(1) For the calculation of SPT and SPC there will be an increase in the minimum paid contribution required from 260 to 520 contributions in April 2012. This change has been provided for in legislation since 1997.

(2) A further reform measure was announced in Budget 2012 providing for a change to the rates bands for SPC due to be introduced from September 2012. From then, 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 SPC paid to new applicants will be appropriate to the average number of contributions paid over a working life. 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. While existing pension recipients are unaffected, the changes proposed will apply to new claimants from September 2012. Claimants who qualify for a reduced rate of SPC and who have income needs may qualify, depending on their means, for a higher rate of State pension (non-contributory). Details of the new rates bands for SPC are set out below.

With regard to wives of farmers, the issue that generally arises is the insurability of employment where both a farmer and his spouse are working on the farm. In this context, the information leaflet 'SW124 – Working with your Spouse' produced by this Department, deals with contributions and entitlements in this situation, including seeking retrospective business partnership status; contributions; shortfalls in PRSI and seeking professional advice. If an application for a business partnership is established, the pension entitlement of each of the spouses will be calculated having regard to the changes outlined above.

Changes to Rate Bands