Written answers

Wednesday, 16 December 2015

Department of Social Protection

State Pension (Contributory) Eligibility

Photo of Mick WallaceMick Wallace (Wexford, Independent)
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57. To ask the Tánaiste and Minister for Social Protection if she will amend legislation on the State pension (contributory) so that the calculation of average contributions only takes into account the number of years actually worked, rather than the number of years since the person started working, given that the current system unfairly penalises women who took breaks in their employment in order to raise children; and if she will make a statement on the matter. [45590/15]

Photo of Joan BurtonJoan 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 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.

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 caring for incapacitated people over that age) to be disregarded when a person's social insurance record is being averaged for pension purposes, subject to the standard qualifying conditions for SPC also being satisfied.

For those with insufficient contributions to meet the requirements for a State pension (contributory), the State pension system provides alternative methods of support. If their spouse has a contributory pension, they may qualify for an Increase for a Qualified Adult amounting up to 90% of a full rate pension, which by default is paid directly to them. Alternatively, they may qualify for a means-tested State Pension (non-contributory), amounting to 95% of the maximum contributory pension rate.

The most recently published Actuarial Review of the Social Insurance Fund confirms that the Fund provides better value to female rather than male contributors. It further confirms that those with lower earnings and those with shorter contribution histories, mostly women, have and will continue to obtain the best value for money from the Fund due to the distributive nature of the Fund.

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 be more closely reflected in 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. The position of women who were homemakers will be considered very carefully in developing this reform.

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