Written answers
Tuesday, 28 February 2017
Department of Social Protection
State Pension (Contributory)
Róisín Shortall (Dublin North West, Social Democrats)
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408. To ask the Minister for Social Protection the cost to the Exchequer in a full year of reversing the 2012 changes to the banding system of the State pension (contributory). [9615/17]
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 each year, 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 by approximately €200m year on year. Maintaining the rate of the State pension and other payments is critical in protecting people from poverty.
There are three main pensions paid by my Department to people aged 66 and over, namely the State pension contributory (which is based on PRSI contributions), the State pension non-contributory (which is based on means), and the Widows/Widowers/Surviving Civil Partners Contributory pension (which is based on PRSI contributions, and is also payable at a lower rate before 66).
The State pension contributory (previously called the Old Age Contributory Pension) was introduced in 1961, and is funded by PRSI contributions, on a pay-as-you go basis. Since its introduction, the rate of payment has been based on the ‘yearly average’ test.
These rates are banded, and those bands have been amended from time to time, most recently in 2012. There have been no changes in the structure of the bands since then, aside from increases in the rates, which are passed on pro-rata to the reduced rates.
As provided for in Budget 2012, from September 2012, new rate bands for State pension (contributory) were introduced. This resulted in one of the 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 are likely to benefit more in retirement than those with lesser contributions.
It is estimated that the cost of reverting to the rate-bands which existed between 2000 and 2012 would be over €50 million in 2017, if introduced from January 2017, and that this annual cost would rise at a rate of some €10 million each year.
Prior to these changes, in the period from 2000-2012, 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 this was 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. Aside from the lack of equity involved, this was a significant disincentive to longer working, as in most cases, contributions paid by people in their sixties had no impact upon the rate of their State pension upon retirement.
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 receive such reduced rate contributory pensions, but rather receive a maximum rate non-contributory pension, or a maximum rate contributory pension if they have the required contributions.
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). The latter payment is made directly to them, and is based upon their own means, and not their household means.
I hope this clarifies the matter for the Deputy.
Comments
Michael Donovan
Posted on 4 Mar 2017 4:04 pm (Report this comment)
I agree hole heartedly,,,,.
Mr O'Sulliven of your recent comments in relation to pensions contributory and noncontabutory.
There however is more to this than meets the eye,,,and thus one must be minded of the rules of such pensions.
in order to avail of a full pension entitlement one must work at least 30yrs pus to avail of full entitlement,,the significant difficulty lys with keeping contributions rolling untill you reach the pivital point of retierment.
this must be undertaken without disturbance,,,,the meaning disturbance is reflected in such that one must not have a day's break from employment.
any break within the circle of earning your right to pension ultimately reverts you back to a "Non contributory pension,,,,the rules are very stringent and thus a farce,,,,given a full week of work creates disturbence within the rules hence then later in life one would have forgotten this weeks break,,,,hence one would be therfore subject to a Non contributory pension,,,,one therfore is all so minded when also leaving a job for another and thus leaving a rest period in between,,,in order to keep track one must keep in contact with "Revenue" making sure you keep your weekly payments in check.
the other issue is having worked in the "UK" or any other "EU Country,,,your at risk if you do not make the necessary contributions.
there is a further issue at stake with pensions and thus this relates to working away,,,,many men and women had worked in "Ireland" whom then found themselves having to leave to make ends meat,,,,they hoped on a boat given many had been forced out of there homes to the "UK"to find alternative employment in order to raise there family's these very people later in life whom we're lucky to return back home had been subject to Non Contributory Pension,,,even thow they had been the pinical of society before leaving,,,,thos whom returned we're denied an Irish pension and therfore under application subjected to a means tested Non Contributory Pension,,,,with this the state.
gave reasonable cause and thus decided to top up "UK Pensions with an Irish top up under means accessmen , ,,,the now difficulty here is that any one whom had been forced out of Ireland to work abroad on return was subjected to a means tested Non Contributory Pension,,,further added to this because a "UK Pension was paid in Sterling,,,this ment when converted to "Euro"applied to the Irish top up Non Contributory Pension,,,,the intrest earned on the Sterling when applied to the Irish pension was a thorn for social welfare,,,,this is we're they write to you to refirm to you that your intrest applied is being accessed any intrest erned over your Irish entitlement therfore would be taken from your Irish Non Contributory,,,,.
so i would say at a guess if you we're or had been over your entitlement for a single pension or a co hapiten couple the amount would be reduced regardless of how long you worked,,,,either side the fence,,,,,further any private pensions or wealth accumulated would also become accessed under your means.
that is the iorney of pensions ie a co hapiten couple still are reflected in the system as a none existence given the wife or partner was worse of ie as you define in your comments.
Jim O'Sullivan
Posted on 3 Mar 2017 4:51 pm (Report this comment)
Varadkar stated previously that he recognised the gross unfairness that resulted from the 2012 changes to the method of assessing entitlement. Those changes resulted in a small number of pensioners being singled out for massive cuts in their entitlements. The fairest way to reduce the pension costs was to cut equally across the board if such a cut was justifiable but this would have meant a serious threat to the election prospects of Fine Gael/Labour candidates so they took the cowardly way and lumped the entire cut onto a small number of citizens. It is grossly unfair, and discriminatory, that a person with more contributions should be getting a smaller pension than a person with fewer contributions and that must be addressed.It must also be stated here that it is women who predominately bore the brunt of this dreadful cut.