John Brady (Wicklow, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

61. To ask the Minister for Social Protection if his attention has been drawn to the fact that almost 36,000 new applicants for the State pension (contributory) have received smaller pensions than they would have if they had retired before 2012, as a consequence of the 2012 pension eligibility changes; and if he will make a statement on the matter. [8416/17]

Catherine Murphy (Kildare North, Social Democrats)
Link to this: Individually | In context | Oireachtas source

68. To ask the Minister for Social Protection his plans to review the eligibility system for the State pension, in view of the fact that a recent report (details supplied) reveals that as a result of the changes to eligibility that 35,000 persons had their pensions reduced; his further plans to address the pension gap between genders; and if he will make a statement on the matter. [8448/17]

Leo Varadkar (Dublin West, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I propose to take Questions Nos. 61 and 68 together. D.):

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 2017, 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 a result of this demographic change, the number of State pension recipients is increasing by approximately 17,000 annually. This has significant implications for the future costs of State pension provision which are currently increasing by close to €1 billion every 5 years. The purpose of changes to the State pension age is to make the pension system more sustainable in the context of increasing life expectancy. The conditions for the State pension (contributory) are reviewed on an ongoing basis, and there have been a number of changes over the years which impact upon whether someone qualifies or not.

One of the conditions of the State pension (contributory) is that a person needs a minimum of 520 weekly contributions (i.e. 10 years) paid since entering insurable employment. If a person does not have this minimum number of contributions paid, they will not generally have an entitlement to this particular pension, either at a full or reduced rate. Since 1961, when contributory pensions were introduced, the average contributions test has been used in calculating the rate of pension entitlement.

As provided for in Budget 2012, from September 2012, new rate bands for State pension (contributory) were introduced. These bands replaced the previous structure, introduced in 2000. These 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, subject to the safety nets in place for those with no other means. Prior to the change in rate bands a person reaching retirement age 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.

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.

Reversing the rates of these bands to the same percentages as were in place during the period 2000-2012 in the next Budget would carry a cost of at least €60 million in 2018, and this would rise at a rate of €10 million per annum. Rather than use those funds in this manner, which would generally benefit pensioners with other means over and above the state pension itself, and who contributed less into the Social Insurance Fund, it was decided that the increases in pension rates in 2016 and 2017 would be across the board, pro-rata, to the benefit of every pensioner.This positively impacted upon many more people than a reversal of the rate-bands, and unlike that approach, it was to the benefit of those pensioners with no other means. Any policy change, which saw the rate-bands reverting to 2000-2012 percentages, would result in significantly less money being available to increase the general rate of the pension.

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.

Where people who were unattached to the labour market during most of their adult lives cannot qualify for a contributory pension in their own right as they have paid few or no contributions, or cannot qualify for a full rate as a result of an intermittent PRSI record, the social protection system provides alternative methods of supporting such pensioners in old age. Therefore, 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 National Pensions Framework (2010) proposed that a “Total Contribution Approach” (TCA) should replace the yearly average approach, for new pensioners from 2020. The aim of this approach 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. This is a very significant reform with considerable legal, administrative, and technical elements in its implementation. An important element in the final design of the scheme the position of gender and gaps in contribution records will be considered very carefully in developing these proposals. The forthcoming independent Actuarial review of the Social Insurance Fund will provide data that will allow officials to accurately cost and project various options under the TCA reform. Following the analysis of that data, it is intended to have a public consultation later this year. Once that is completed, proposals on the final details of the scheme will be made by the Government to the Oireachtas before the end of the year.

I hope this clarifies the matter for the Deputy.