Written answers

Thursday, 10 April 2014

Department of Social Protection

Pension Provisions

Photo of Jerry ButtimerJerry Buttimer (Cork South Central, Fine Gael)
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88. To ask the Minister for Social Protection regarding changes to the rate of payment of the State pension contributory, for persons with a yearly average of less than 40 contributions, in view of the disproportionate impact which this change is having on women, if she will review the changes made and examine if the system of payment can be made more equitable; and if she will make a statement on the matter. [17093/14]

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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The State pension is a very valuable benefit and is the bedrock of the Irish pension system. Therefore, it is important to ensure that those qualifying have made a sustained contribution to the Social Insurance Fund over their working lives and the reform measures introduced to date go somewhat toward that goal.

Currently a person’s date of entry into insurance is taken as the date used for averaging purposes. To qualify for a state pension a person must:

- have entered insurance before the age of 66;

- have at least 520 paid contributions and

- satisfy a yearly average (a yearly average of 48 contributions paid and/or credited is required for a full rate pension).

The State pension (contributory) is based on contributions paid and credited over the course of the pensioners working life, and those who had less attachment to the workforce qualify for lower pensions, accordingly, under that scheme. As provided for in Budget 2012, from September 2012, new rate bands for State pension were introduced. These additional payment rate bands more accurately reflect the social insurance history of a person and ensure that those who contribute more during a working life benefit more from this scheme in retirement than those with lesser contributions.

This does not mean that those less attached to the workforce will not have an income need in old-age, and for this reason the social protection system provides alternative methods of supporting such pensioners, based either on the contributions made by their spouse, or on their own needs.

An increase for a qualified adult, which is means tested, may be made in respect of an adult dependant who does not qualify for a pension in their own right, or who qualifies for a lower rate of pension due to gaps in his/her insurance. The means tested non-contributory pension may be available to an individual who meets the qualifying criteria.

The homemaker’s scheme makes qualification for State pension (contributory) easier for those who take time out of the workforce for caring duties. The scheme which was introduced in and took effect from 1994 allows up to 20 years spent caring for children under 12 years of age, or incapacitated people, to be disregarded when a person’s social insurance record is being averaged for pension purposes. In relation to women (who are usually the main beneficiary of the Homemakers scheme) and social insurance payments, it is worth noting that the Actuarial Review of the Social Insurance Fund 2012 confirms that the Fund provides better value to female rather than male contributors, due to the distributive nature of the Fund.

The combination of measures under the Social Protection code have resulted in very similar outcomes for male and female pensioners in Ireland, with poverty rates for women over 65 being slightly lower than those for men. The success of these measures in ensuring equality of outcomes for men and women over 65 is evidenced by the poverty statistics. The ‘at risk of poverty’ rate in 2011 was 10.1% for men, compared to 9.4% for women. The consistent poverty rates were 2.1% for men and 1.8% for women.

Budget 2006 saw the personal rate for the State Pension (contributory) set at €193.30. The current full rate of payment is 19% higher, despite the very significant budgetary adjustments required for most of the period since then. As regards those with a yearly average of less than 40 contributions, even for those with an average of only 20, such reduced rate State pensioners are paid a higher rate now than the full rate was at that time.

The yearly average test has been in existence since 1961 when contributory pensions were first introduced. The system was designed to ensure that people could qualify for contributory pensions immediately rather than waiting for contributions to build up and to suit a system where social insurance coverage was less comprehensive and people could move in and out of coverage as a result of the nature of their employment and/or earnings. Social insurance is now long established and is comprehensive in terms of the workforce covered.

It is planned that a total contributions approach to pension qualification will replace the current average contributions test for State pension (contributory). The proposed date for the introduction of this change is 2020, but this may be subject to change.

Photo of Jerry ButtimerJerry Buttimer (Cork South Central, Fine Gael)
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89. To ask the Minister for Social Protection if she will consider implementing a homecarer's credit for the purposes of calculating pension contributions for persons who spent time out of work to raise a family; and if she will make a statement on the matter. [17094/14]

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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The homemaker’s scheme was introduced in 1994 to make qualification for State pension (contributory) easier for those who take time out of the workforce for caring duties. It does this by disregarding years spent outside the workforce on such duties when calculating the average contributions per year on the pensioner’s record.

To be eligible for the homemaker’s scheme, a person must:

- Permanently live in the State (exception may be made where EU regulations apply),

- Be aged under 66,

- Have started insurable employment or self-employment before the age of 56,

- Not work full-time, although for the purposes of this scheme, a person can work and earn less than €38 gross per week,

- Care for a child (under 12) or an incapacitated person on a full-time basis.

The scheme allows up to 20 years spent caring for children under 12 years of age, and/or an incapacitated person, to be disregarded when a person’s social insurance record is being averaged for pension purposes.

However, it is important to note that the scheme will not, of itself, qualify a person for a pension. The standard qualifying conditions, which require a person to enter insurance ten years before pension age, pay a minimum of 520 contributions at the correct rate and achieve a yearly average of at least 10 contributions on their record from the time they enter insurance until they reach pension age, must also be satisfied. For those who do not satisfy these conditions, and have an income need, a means-tested State pension may be available.

The introduction of homemaker credits would be an alternative approach. Instead of disregarding years outside the labour market, reducing the duration of the insurance record, and thereby increasing the average number of contributions paid per year, a homemakers credits scheme would involve the award of credits for the period(s) spent outside the labour market in a caring capacity. A homemaker credit would improve the likelihood of qualifying and of receiving a higher rate of pension for those affected.

However, the introduction of homemaker credits raises a number of issues, most notably cost. If they were awarded from a current date, the cost initially would likely be low, at less than €100,000 per annum, based on 2010 estimates. Costs in relation to current homemaker’s disregard scheme are expected to increase in the coming years due to the 20% increase in female employment rates between 1994 and 2008.

A further factor impacting on possible costs would be the date from when such credits were effective. The 2007 Green Paper on Pensions indicated that to back-date the current homemaker’s disregard scheme to 1953, the year when the unified system of social insurance was introduced, would cost the Exchequer some €160 million per annum.

Consideration would also need to be given to the number of possible eligible people previously employed in Ireland, who are now resident in other countries such as the UK and for which no estimates are available but which could add significantly to costs, given the general increase in female employment.

It is planned that a total contributions approach to pension qualification will replace the current average contributions test for State pension (contributory). The proposed date for the introduction of this change is 2020, but this may be subject to change.

The total contributions approach (whereby the pension payment will be based on the number of contributions paid and credited) will remove the current anomaly whereby people can achieve a higher average contribution rate, and thus a higher level of pension, even where they have a lower total number of contributions paid. This move will bring transparency and fairness to the eligibility for pension. Issues such as the introduction of homemaker’s credits will be considered in the context of this reform.

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