Finian McGrath (Dublin North Central, Independent)
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33. To ask the Tánaiste and Minister for Social Protection if she will reconsider the pension calculation which was brought in during the austerity period where a person who has worked considerable amount of time with a short break is receiving the same contributions as one who has never worked in their lives (details supplied); and if she will make a statement on the matter. [35085/15]

Joan Burton (Dublin West, Labour)
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The State pension contributory 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. To ensure that the individual can maximise their entitlement to a State pension, all contributions paid or credited over their working life from when they first enter insurable employment until pension age are taken into account when assessing their entitlement and the level of that entitlement.

Since 1961, when contributory pensions were first introduced, the average contributions test has been used in calculating pension entitlement. Once over 16 years of age, the date a person enters into insurable employment is the date used for averaging purposes.

To qualify for a state pension (contributory) a person must –

have at least 520 paid contributions, and

satisfy a yearly average condition (a yearly average of 48 contributions paid or credited is required for a full rate State pension (contributory), and reduced rates of payment may be payable for pensioners with lower averages).

Working part-time would not generally reduce entitlement, as part-time workers also pay weekly PRSI contributions, however absences from the labour force - when contributions were neither deducted from pay nor credited in respect of a social welfare payment – may impact upon the rate of a person’s pension.

This can be mitigated by the homemaker’s scheme, which 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 caring for incapacitated people over that age) to be disregarded when a person’s social insurance record is being averaged for pension purposes. It should be noted however that the scheme will not, of itself, qualify a person for a pension. The standard qualifying conditions must also be satisfied.

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 in retirement than those with lesser contributions.

Those with lower earnings and those with lesser contribution histories continue to obtain the best value for money from the Social Insurance Fund. Even for those with an average of only 20 contributions per year (i.e. 38% of the maximum), reduced rate State pensions of €196 are now paid, a higher rate than the full rate in 2007, so that those retiring after September 2012 who are being paid a reduced amount under the new bands are still receiving more, in real terms, than the maximum pension rates that applied during most of their working life.

For those with insufficient contributions to meet the requirements for a State pension (contributory), the State pension system provides alternative methods of support. Where someone over 66 does not qualify for a full rate contributory pension, they may apply for a non-contributory pension, which is based on need and is means tested. The maximum rate of this pension is €219 weekly, which is 95% of the maximum rate of the contributory pension.

Where it is more beneficial for the claimant, they may instead seek an Increase for Qualified Adult payment, on their spouse’s State pension contributory, the maximum rate of which is €206.30. This increase is, by default, paid directly to the Qualified Adult.

Work is underway to replace the ‘yearly average’ system with a ‘total contributions approach’. Under this approach, the number of contributions recorded over a working life will more closely reflect the rate of pension payment received. It is expected that the total contributions approach to pension qualification will replace the current average contributions test for State pension (contributory) for new pensioners from 2020, although that date is subject to change, as this is a very significant reform with considerable legal, administrative, and technical challenges to be overcome in its implementation. When proposals are agreed, legislation will be brought forward to underpin the necessary changes.