Seán Haughey (Dublin Bay North, Fianna Fail)
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86. To ask the Minister for Social Protection if she will award the full rate of payment to new applicants for the State pension (contributory); the significance of the 6 April 2012 date in this regard; if the homemaker's scheme introduced in 1994 is relevant to cases; her plans to move from an average contributions test to a total contributions approach; if she will backdate homemaker's credits to allow more claimants to obtain a full rate of payment; and if she will make a statement on the matter. [8431/16]

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 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.

“Developing the National Pensions System – Final Report of the National Pensions Board” published in 1993, recommended that the number of paid contributions required to qualify for a contributory pension should be increased to 520 and the necessary legislation to effect these recommendations was contained in Section 12 of the Social Welfare Act 1997 which provided for their implementation in two stages, with the paid contribution requirement being standardised at 260 from 2002, rising to 520 from April 2012.

The homemaker’s scheme makes qualification for a higher rate of 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 State pension contributory also being satisfied. This has the effect of increasing the yearly average of the pensioner, which is used to set the rate of their pension. The scheme does not involve the award of credits. There are no proposals to backdate the scheme prior to 1994 due to the very significant costs involved which would be expected to increase year on year.

Work has commenced to replace the ‘yearly average’ system with a ‘total contributions approach’ where the number of contributions recorded over a work 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 legislative, administrative, and technical aspects to be addressed in its implementation. When proposals are agreed, legislation will be brought forward to underpin the necessary changes. I believe that it is important that the changes be announced well in advance of introduction, to enable those workers affected to include the new factors into their retirement planning. This new method will provide greater benefit for some, but not all, future pensioners than they would have had under the current system. It is not anticipated that the changes will apply to existing pensioners. Any reforms are required to contribute to the ongoing sustainability of the pensions system and not increase costs.

It is worth noting that the Actuarial Review of the Social Insurance Fund in 2012 confirmed that the Fund provides better value to female rather than male contributors. This is due to the distributive nature of the Fund. For example, those with a yearly average of only 20 contributions (38% of the maximum) may qualify for 85% of the maximum rate.

It should also be noted that, where people cannot qualify for a full rate contributory pension as a result of an intermittent PRSI record, the social protection system provides alternative methods of supporting such people in old age. For example, 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 up to 95% of the maximum contributory pension rate.