John Curran (Dublin Mid West, Fianna Fail)
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172. To ask the Minister for Social Protection the additional cost that would be incurred if the pre-2012 bands were re-established in the calculation of the State contributory pension in budget 2018; the further cost if this were to be backdated to all who incurred pension reductions as a result of the band changes; and if he will make a statement on the matter. [23577/17]

Leo Varadkar (Dublin West, Fine Gael)
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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.

These bands have been changed a number of times over the years. For example, there was no payment for people with a yearly average below 24 until 1973, or for those below 20 until 1989. Between the years 2000-2012, someone 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. This meant that the last 20 years of a person’s contributions to the Social Insurance Fund might have no impact upon their contributory pension entitlements.

When savings were required in 2012, as part of dealing with the fiscal crisis which faced the country, it was decided to make them by addressing this anomaly, rather than cut the core rate of the pension, which would have hit all pensioners, including the poorest, notably those solely dependent upon the State pension.

It is estimated that the cost of reverting to the percentage rate-bands which existed between 2000 and 2012 would be over €60 million in 2018, if introduced from January 2018, and that this annual cost would rise at a rate of some €10 million each year, that is an additional amount of €10 million in each subsequent year would be added to the base amount, e.g. €70 million in 2019, etc.

Calculation of the cost of backdating such a change (i.e. paying a lump sum in respect of the difference between such higher rates and those legislated for in the period 2012-2017) would be very complex, would require analysis of a number of historic datasets, and would be complicated by the fact that the State pension (transition) was abolished during the period in question. There would also be issues as to whether such back-dating applied only in respect of such pensioners who were still in payment at the date a decision was made to backdate such a change, or if there would also be similar payments made to the estates and/or surviving spouses of those pensioners who died beforehand. The effective date of such backdating would also impact upon the cost. It is very tentatively estimated that, depending on the details of such a payment, the cost of such backdating would be in the region of €200 million.

It should be noted that backdating of such an increase and payment as a lump sum would be extremely unusual, in the context of a weekly payment such as the State pension, and there are no plans to make such a payment.

I hope this clarifies the matter for the Deputy.