Declan Breathnach (Louth, Fianna Fail)
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303. To ask the Minister for Social Protection if the changes planned to come into effect in 2020 in the way the State pension (contributory) is calculated, taking total contributions into account rather than the current averaging system, will be retrospectively applied to persons currently receiving a reduced rate of State pension (contributory) due to the averaging system; if he has decided the number of full contributions that will be required to qualify for the full rate of State pension (contributory) on or after 2020; and if he will make a statement on the matter. [3135/17]

Leo Varadkar (Dublin West, Fine Gael)
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There are a number of ways to qualify for a State pension. The rate of payment under the State pension (contributory) scheme is related to contributions paid over the years into the Social Insurance Fund, and credited contributions where applicable. As such, those with a stronger attachment to the workforce, who have paid more into that fund, are more likely to be paid at a higher rate under that scheme, than those with more intermittent contributions made during their working life.

At present, entitlement to the contributory pension is determined by means of a ‘yearly average’ calculation, where the total contributions paid or credited are divided by the number of years of the working life. The yearly average test has been in existence since 1961 when contributory pensions were first introduced. Payment rates are banded. For example, someone with a yearly average of 48 or more contributions will qualify for a full pension, whereas someone with a yearly average of 20-29 will qualify for a pension at the 85% rate.

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.

The total contributions approach (TCA) is one of a number of planned reforms to the State pension set out in the National Pensions Framework (NPF) commissioned by the then Government and published in March 2010. The aim of the TCA is to make the rate of contributory pension more closely match contributions made by a person. Officials of my Department are currently working on the detailed development of the TCA with a view to making proposals for consideration later this year. An important element in the final design of the scheme will be the position of people who have gaps in their contribution records for various reasons, and this factor is being considered very carefully in developing this reform. Although TCA is expected to replace the yearly average approach for new pensioners from 2020, that date is subject to change as this is a very significant reform with considerable legal, administrative, and technical elements in its implementation.

It should be noted that there will be people for whom the new scheme will be more beneficial, and others for whom the older basis was to their advantage. Therefore, if a cohort of pensioners is allowed choose the scheme which pays them at a higher rate, regardless of when they reached retirement age, this would inevitably result in a significant cost to the Exchequer, which would reduce the funds available for pensions generally.

The forthcoming independent Actuarial Review of the Social Insurance Fund will provide data that will allow my officials to accurately cost and project various options available under the TCA reform. Following the analysis of that data, it is intended to have a public consultation, in mid-2017, and following this, proposals on the final details of the scheme, including the number of years contributions required for a full pension, will be made by the Government to the Oireachtas before the end of the year.

I hope this clarifies the matter for the Deputy.