Thomas Pringle (Donegal, Independent)
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58. To ask the Minister for Social Protection if the cost of backdating the homemaker’s scheme to encompass periods before 1994 has been estimated by his Department at €290 million; the basis for the increased figure in view of the fact that the cost was previously estimated in the 2007 Green Paper on Pensions to be approximately €150 million to €160 million; and if he will make a statement on the matter. [8445/17]

Leo Varadkar (Dublin West, Fine Gael)
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Since 1961, when contributory pensions were introduced, the average contributions test has been used in calculating the rate of pension entitlement. Entitlement is banded, with the maximum rate payable to those with a yearly average of 48-52 contributions, and the minimum rate payable to those with a yearly average in the range of 10-14 contributions per year. Even if someone has only 10 years (520 weeks) of paid reckonable contributions between their 16th and 66th birthdays, they would generally qualify for a State pension (contributory), although the rate payable would vary depending on their circumstances, and it will not always be their most advantageous payment to claim, particularly if they qualify for a full-rate State pension (non-contributory).

The homemaker’s scheme was introduced in 1994 to make qualification for State pension contributory (SPC) easier for those who take time out of the workforce for caring duties.

The scheme allows up to 20 years spent caring for children under 12 years of age, or incapacitated people, to be disregarded when a person’s social insurance record is being calculated for pension purposes. The effect of this is to reduce the number of years by which the person’s contributions are divided, thereby increasing their yearly average, making it easier for them to qualify for a maximum rate SPC. It does not involve the award of credits. My Department reviews these and other provisions on an ongoing basis and has estimated that the cost of extending the Homemakers scheme to allow people to avail of the full 20 years currently allowed under the scheme, encompassing periods prior to 1994, could cost €290m in 2017. This figure would increase in subsequent years.

When the Green Paper was published in 2007, the expenditure on the State pension (contributory) amounted to €2.75 billion. The authors were asked to estimate the cost of backdating Homemakers at that point, and in doing so, noted that

“it is extremely difficult to estimate with any degree of certainty what the likely impact of backdating will be. Accordingly, the following estimates are extremely tentative”.

While there are a number of challenges involved, perhaps most notable are (a) estimating the level of take-up by fathers, and (b) the likely movements from one scheme to another, e.g. current non-contributory pensioners who would as a result have a higher contributory pension entitlement instead, and the net cost to the State in such cases.

The estimate arrived at in 2007 was €160 million (with reduced costs where the backdating was limited), which amounted to 5.8% of State pension contributory expenditure. The scheme did not apply to the State pension (transition), and has no impact upon the State pension (non-contributory).

There are now significantly more pensioners than there were in 2007, and the rate of payment has also increased significantly, and so the cost of both the pension, and of awarding higher percentage payments to former homemakers, is more substantial. The State pension contributory has a provision for €4.844 billion in 2017. A recent exercise by the Department, based on up-to-date data, estimated that cost of backdating the Homemakers scheme in 2017 would be approximately €290 million, with similar caveats about the degree to which it could be estimated. This amounts to just under 6% of state pension (contributory) expenditure.

There are a number of reasons which would be expected to increase the relative cost of backdating the homemakers scheme, but the main one is that the PRSI records of those retiring is evolving over time. Women qualifying for a pension today were less than 22 years old when the ‘marriage bar’ was ended, and were more likely to return to work following a few years out of the workforce than those who started families a decade earlier. Indeed, many of the earlier cohort would have little or no PRSI contribution record at all, if they started their families when relatively young. While many, in both cohorts, would qualify for an Increase for a Qualified Adult (IQA) or a non-contributory pension, an increasing number, particularly those who had significant personal means such as a private or occupational pension, now qualify instead for a reduced rate contributory pension, of say 85% of the maximum rate. Such women would benefit very significantly from backdating of the scheme, whereas women with no means who continued to receive an IQA or a non-contributory pension would receive no benefit were such backdating to be introduced. It would be expected that this would continue to increase the annual cost of such a measure, were it to be introduced, over the coming years.

I hope this clarifies the matter for the Deputy.