Michael Creed (Cork North West, Fine Gael)
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Question 397: To ask the Minister for Social Protection if it is proposed to pay a pro-rata contributory pension to applicants whose PRSI contributions fall short of the revised requirements effective from 1 May 2012; and if she will make a statement on the matter. [27058/12]

Joan Burton (Dublin West, Labour)
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In relation to question raised by the Deputy I take it that the Deputy is referring to the changes to the rate bands which will be introduced in September 2012.

This change means that pension payments made, for new customers, will reflect PRSI payments made over a working life. 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. This is neither fair nor equitable.

From September 2012, a lower pension will be payable to new applicants for State pension who have a yearly average of less than 48 PRSI contributions which better relates to their PRSI record. This measure introduces additional rates bands for State pension (transition) and State pension (contributory) to more fairly reflect the proportionality of attachment to the workforce by the claimant.

The maximum rate will remain unchanged and the rate payable to people with an average of between 40 and 47 contributions per year will also remain unchanged. However, those who have fewer contributions will receive a lower rate of pension. This change moves somewhat closer to the total contribution approach outlined below where those who pay more, benefit more. I have set out below, for information, the new rate bands below.

Given the scale of the fiscal crisis and because spending on social protection accounts for nearly 40% of current Government expenditure, you will appreciate that savings have to be found in the social welfare system.

There is also an important long-term policy context for the proposed changes to State pension as 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. People aged 65 years and over will account for a greater proportion of the population while the proportion of working age is expected to decline. People are living longer with healthier lives and growing numbers of people want to work, or may need to work beyond State pension age. This has obvious and significant implications in relation to the future costs of State pension provision. Therefore, the task of financing increasing pensions will fall to a diminishing share of the population.

Taking all of these factors into consideration, I introduced legislation in the Social Welfare and Pensions Act, 2011 to abolish the State pension (transition) with effect from January 2014 standardising pension age at 66 years. The State pension (contributory) age will be increased in 2021 to 67 years and to 68 years with effect from 2028.

In the future, a 'total contributions approach' to State pension will be adopted to replace the current averaging system. The current 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.

The State pension is the bedrock of the Irish pension system, and these reforms are essential to address the challenges of increasing life expectancy and to ensure its sustainability.

All information relating to the changes that I have outlined here is also available on my Department's website.

Current State Pension (Contributory) Rates of payment

New State Pension (Contributory) Rates of payment

Current State Pension (Transition) Rates of payment

New State Pension (Transition) – Rates of payment