Seán Fleming (Laois, Fianna Fail)
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2000. To ask the Minister for Social Protection if she will consider in the forthcoming budget and Estimates process allowing a person's contributory pension to be based on their best 40 years of contributions (details supplied); and if she will make a statement on the matter. [26983/17]

Regina Doherty (Meath East, Fine Gael)
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Expenditure on pensions, at approximately €7.3 billion, is the largest block of expenditure in my Department, representing some 37% of its expenditure. Demographic change alone will increase this by over €220 million this year. Maintaining the rate of the State pension is critical to protecting older people from poverty.

There are two State pensions related to reaching state pension age. Firstly, the State pension (non-contributory) is a means tested pension and is funded by general taxation. Secondly, the State pension (contributory) is not means tested and is paid from the Social Insurance Fund.

In Ireland, as in other countries, the contributory pension is primarily aimed at people with sustained contributions towards the Social Insurance Fund which finances it, on a pay as you go basis, and rewards such contributions with greater entitlements and coverage for a range of benefits, including contributory pension entitlements. It is important to ensure that those qualifying for a contributory pension have made a sustained contribution to the Social Insurance Fund over their working lives. To ensure that the individual can maximise their entitlement to a State pension (contributory), all contributions paid or credited over their working life from when they first enter insurable employment until pension age are taken into account when assessing their entitlement and the level of that entitlement.

To amend the Yearly Average calculation in such a way that would result in higher pension rates for a significant number of pensioners would, in turn, carry a significant Exchequer cost, and reduce the scope for future pension rate increases. Such a decision could only be made in the context of the budgetary process.

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 in the calculation of the pensioners yearly average. This may have the effect of increasing the yearly average of the pensioner, which is used to set the rate of their pension, and may in turn qualify them for a higher rate of payment. The disregard does not involve the award of credits, and entitlements are still subject to the standard qualifying conditions for State pension contributory also being satisfied, including a minimum of 520 paid contributions being paid before reaching pension age.

This scheme was not introduced retrospectively for periods prior to its introduction. 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 increase in the overall cost of State pensions. This is a very significant cost, and the main beneficiaries would be people who already have significant household means, and who do not therefore qualify for an alternative 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.

For example, a person with a yearly average of 20 contributions paid or credited per year may qualify for a reduced rate SPC of €202.80. However, they can instead be paid a higher amount through the non-contributory pension, unless their means are over €52.50 per week (or €105 for a married couple), at a minimum payment rate of €204.50 (maximum rate is €227), which would bring their total personal means (including their pension) to over €257 per week. Their household means test ignores their spouse’s state pension, the capital value of their home, and has generous income and capital asset disregards, where applicable. This minimum of €257 doesn’t include rent allowance, household benefits or fuel allowance. It is also higher than the €238.30 received by a person solely dependent upon a maximum rate State pension (contributory), who would receive no benefit from any change to the method of calculation of contributory pension entitlements. In fact they would experience a loss if such a change was financed by reducing the core rate of the State pension, or by moderating increases in the future.

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.

I hope this clarifies the matter for the Deputy.

Seán Fleming (Laois, Fianna Fail)
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2001. To ask the Minister for Social Protection if as part of the forthcoming budget and Estimates process she will consider reversing the amount of a State contributory pension a person can receive in their personal rate to the bands that were in existence prior to budget 2012; and if she will make a statement on the matter. [26984/17]

Regina Doherty (Meath East, Fine Gael)
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Each year more people are living to pension age and living longer in retirement. As a result of this demographic change, the number of State pension recipients is increasing year on year. This has significant implications for the future costs of State pension provision, and demographic change alone is expected to increase spending on pensions by over €220 million this year, not including the impact of rate increases.

The current rate bands applying to the State pension (contributory) were introduced from September 2012, replacing previous rates introduced in 2000. These rate bands more accurately reflect the social insurance contributions history of a person.

It is estimated that to revert to the previous bands would result in an annual cost at least €60 million in 2018, and this annual cost would increase by an estimated €10 million each following year as a greater number of pensioners qualify under the current rules, i.e. €70 million in 2019 etc. The main beneficiaries from such a decision would be better off pensioners who do not qualify for means-tested pension payments, and who did not make sufficient contributions into the Social Insurance Fund to qualify for a full rate contributory pension.

Prior to the introduction of the current rate bands, a person reaching retirement age with a yearly average of 47 contributions (out of a maximum of 52) qualified for the same rate of payment as someone with a yearly average of 20 contributions, despite their much more significant PRSI contribution record, and regardless of their means. A person with the maximum of 52 weeks of contributions paid every year of their working life received a weekly State pension of only €4.50 more than someone with a yearly average of 20 PRSI contributions.

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. 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 rate of payment does not include rent allowance, household benefits or fuel allowance, which would be additional payments where applicable.

The Actuarial Review of the Social Insurance Fund in 2012 confirmed that the Fund provides better value to female rather than male contributors. This is due to the redistributive nature of the Fund.

Any potential improvements for pensioners in the next Budget will be considered in the context of the available resources for pensions and other social protection payments.

More generally, 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.

I hope this clarifies the matter for the Deputy.