Éamon Ó Cuív (Galway West, Fianna Fail)
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226. To ask the Minister for Social Protection the rules in place that will apply to a person who was born in 1965 in relation to eligibility for the State pension (contributory) in terms of the age they will be eligible for the pension and the method by which their entitlement will be calculated; if averaging will apply as at present or the total number of contributions; and if she will make a statement on the matter. [41943/14]

Joan Burton (Dublin West, Labour)
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The Social Welfare and Pensions Act 2011 provides that State pension age will be increased gradually to 68 years. This began in January 2014 with the abolition of the State pension (transition) available at 65, thereby standardising State pension age for all at 66 years. State pension age will increase further to 67 in 2021 and 68 in 2028

Currently in order to qualify for the State pension (contributory), a person must satisfy a number of qualifying conditions which include:

- 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).

Qualification for a pension is calculated on an averaging system based on the PRSI contributions paid over a working life. The individual’s yearly average number of contributions determines the amount of pension paid. This is generally calculated from the date on which paid employment commenced to pension age, therefore it varies depending on each individual’s working life.

The average contributions test has been used in calculating pension entitlement since 1961 when contributory pensions were first introduced. The system was designed with a view to ensuring that people could qualify for contributory pensions immediately in that year rather than waiting for contributions to build up, and to suit a system where social insurance coverage was limited and people could move in and out of coverage as a result of the nature of their employment and/or their earnings. Since that time there have been significant reforms to the PRSI system, which have increased coverage to most classes of working people.

Under the pension reform programme, it is planned to replace this method of calculating pension entitlements with a ‘total contribution approach’. 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 OECD Review of the Irish Pension System which was published in April 2013 endorsed the move to a total rather than an average contributions test to determine entitlement to a State pension.

In considering the move to such a system, relevant factors were the opportunities 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.

The proposed date for the introduction of a move to a total contributions approach is 2020, but this may be subject to change.

The precise details regarding effective date and, therefore, which current employees will have their State pension (contributory) calculated under existing or new rules, will be decided at a later date, but well in advance of the new system coming into effect.