Mattie McGrath (Tipperary, Independent)
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264. To ask the Minister for Social Protection if he will consider the way in which the contributory State pension is calculated to avoid those who had absences from the workforce for a variety of reasons, including but not limited to child rearing, are not inadvertently discriminated against due to the low yearly average rate, while those who only entered the workforce late and had a full ten year record and receive a full pension due to their high yearly average; his views on whether this policy discriminates against those who took time out to rear their families; and if he will make a statement on the matter. [28129/16]

Leo Varadkar (Dublin West, Fine Gael)
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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. In this context, even if someone has only 10 years (520 weeks) of paid reckonable contributions between their 16th and 66th birthdays, they may qualify for a State pension (contributory), although the rate payable would vary depending on their circumstances. A yearly average of 48-52 weeks contributions is required to qualify for a 100% rate pension of €233.30, and banded payments apply for those with lower yearly averages. For example, where someone entered insurable employment aged 16 and had 2,000 weekly contributions (38.5 years) paid and/or credited, they would have a yearly average of 40, and would receive a pension at 98% of the full rate (for those in the 40-47 band). People who qualify for lower band rates may, if they satisfy the means-test, qualify for the State pension (non-contributory), the maximum rate of which is 95% that of the State pension (contributory). Where their spouse is in receipt of a State pension (contributory), they may qualify for an Increase for a Qualified Adult, which maybe paid at up to 90% of the rate of a full pension (by default, this payment is made directly to the Qualified Adult).

The home-makers 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 after that date 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.

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. The Review also examined the changes in the contribution rules and the associated rates of payment which were to be introduced in September 2012. The Review found that those with lower earnings and those with shorter contribution histories still obtain the best value from their contributions.

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. The position of women who were home-makers will be considered very carefully in developing these proposals. 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 around 2020. This is a very significant reform with considerable legal, administrative, and technical components to be put in place prior its implementation.

I hope this clarifies the matter for the Deputy.