Brendan Smith (Cavan-Monaghan, Fianna Fail)
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391. To ask the Minister for Social Protection his plans to amend the legislation and regulations for eligibility for the State contributory pension (details supplied); if his attention has been drawn to the fact that many persons have been denied full rate of payment due to this method of calculation; and if he will make a statement on the matter. [18259/17]

Leo Varadkar (Dublin West, Fine Gael)
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The State pension contributory is one of a number of pensions the State pays to people over 66. 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 (i.e. the period between when they first entered insurable employment and the year of pension age). The yearly average test has been in existence since 1961 when contributory pensions were first introduced. Payment rates are banded, e.g., 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.

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 for periods from 1994, allows up to 20 years 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. My Department has estimated that the annual 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 some €290m in 2017, and this figure would rise at a faster rate than the rate of the overall cost of State pensions. This is a significant cost. The main beneficiaries would be people who already have significant household means, and who don’t therefore qualify for a means-tested payment.

Where someone does not qualify for a full rate contributory pension, they may qualify for an alternative payment. 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. Alternatively, they may qualify for a State pension (non-contributory), which amounts up to 95% of the maximum contributory rate. While this payment is subject to a household means-test, there are very significant disregards which mean that over 70% of such pensioners qualify at the full rate.

The National Pensions Framework (2010) proposed that a “Total Contributions 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 with a view to making proposals for consideration later in the year. 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 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

The forthcoming independent Actuarial review of the Social Insurance Fund will provide data that will allow officials to accurately cost and project various options available under the Total Contributions Approach currently being developed. 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 will be made by the Government to the Oireachtas before the end of the year.

I hope this clarifies the matter for the Deputy.