Brendan Griffin (Kerry, Fine Gael)
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300. To ask the Minister for Social Protection the estimated annual cost of providing the full rate of contributory pension to all recipients of the reduced rate of the state pension contributory; and if he will make a statement on the matter. [31529/16]

Leo Varadkar (Dublin West, Fine Gael)
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The State pension (contributory) SPC 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).

It is worth noting that the most recent Actuarial Review of the Social Insurance Fund found that those with lower earnings and those with shorter contribution histories still obtain the best value from their contributions.

I am informed that the additional cost of paying all current State pension (contributory) payments at the maximum rate would amount to just over €309 million per annum. However, this would not be the full cost to the Social Insurance Fund of such a move. These costings do not take into account people who qualify for a reduced rate of State Pension Contributory, but instead are paid a State Pension (non-contributory), or an Increase for Qualified Adult payment, due to receiving a more favourable rate. It is thought that a significant number of such pensioners would qualify for a full rate State pension contributory instead, if that became payable to everyone who satisfied the relevant criteria, and that the additional cost of that change could be expected to be quite significant.

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 around 2020. This is a very significant reform with considerable legal, administrative, and technical components to be put in place prior its implementation. The position of people who have gaps in their contribution records for various reasons will be considered very carefully in developing this reform.

I hope this clarifies the matter for the Deputy.