Éamon Ó Cuív (Galway West, Fianna Fail)
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278. To ask the Minister for Social Protection the annual cost of reversing from 1 January 2017 the cuts made to the rates of payment of the State pension contributory where the yearly average number of contributions and credits is less than 48 contributions; and if he will make a statement on the matter. [29824/16]

Leo Varadkar (Dublin West, Fine Gael)
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The overall concern in recent years has been to protect the value of weekly social welfare rates. Expenditure on pensions, at approximately €7 billion, is the largest block of expenditure in my Department in the Estimate for 2016, representing approximately 35% of overall expenditure. Due to demographic changes, my Department’s spending on older people is increasing year on year. Maintaining the rate of the State pension and other payments is critical in protecting people from poverty.

As provided for in Budget 2012, from September 2012, new rate bands for State pension (contributory) were introduced. This resulted in one of bands (in respect of those with a yearly average of 20-47 contributions), being replaced with three bands (in respect of yearly averages of 40-47, 30-39, and 20-29 respectively). These additional 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.

Prior to these changes, someone with a yearly average of 47 contributions qualified for the same rate of payment (98% of the maximum rate) as someone with a yearly average of 20 contributions, despite generally their much more significant PRSI record, and regardless of their means. A person with an average of 48-52 PRSI contributions per year over their working life received a weekly State pension of only €4.50 more than someone with a yearly average of 20 PRSI contributions.

The principle that the amount of pension paid should reflect the PRSI contributions paid over a working life needs to be adhered to if we are to be able to fund pensions into the future. Given the requirement to make savings in recent years, it was considered more equitable to address this disparity than to reduce the rate of payment for all pensioners by an across the board cut in payment rates. Such a cut would have reduced the incomes of the most vulnerable pensioners, who do not generally receive reduced rate contributory pensions, but rather receive a non-contributory pension, or a maximum rate contributory pension.

For those with insufficient contributions to meet the requirements for a full rate State pension (contributory), they may qualify for a means tested State pension (non-contributory) which has a maximum personal rate of €222, or just over 95% of the maximum rate of the State pension (contributory). Alternatively, if a person’s spouse or civil partner is in receipt of a State pension (contributory) they may instead qualify for an Increase for a Qualified Adult of up to €209, which is just less than 90% of the maximum personal rate of the State pension (contributory).

It is estimated that the exchequer savings arising from the existing rate bands will be €50 million in 2017, and that this will rise at a rate of some €10m annually.

The measure introduced in September 2012 is a step towards a total contributions approach by aligning the rate of pension payment more closely to the number of contributions paid over a working life. This means that people who contribute more will receive a higher rate of pension.

I hope this clarifies the matter for the Deputy.