Róisín Shortall (Dublin North West, Social Democrats)
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1593. To ask the Minister for Employment Affairs and Social Protection her views on the impact of the 2012 band changes to the calculation of the contributory State pension; if her attention has been drawn to reports of its disproportionate impact on women that took a break from the workforce; and if she will make a statement on the matter. [36646/17]

Regina Doherty (Meath East, Fine Gael)
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As a result of more people living to pension age and living longer in retirement the number of State pension recipients is increasing year on year. This has significant implications for the future costs of State pension provision. This 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 closely reflect the social insurance contributions history of a person than those in place between 2000 and 2012.

It is estimated that to revert to the previous bands would result in an annual cost of over €60 million in 2018, and this annual cost would increase by an estimated €10 million each following year. The main beneficiaries from such a decision would be pensioners who haven’t made sufficient contributions into the Social Insurance Fund to qualify for a contributory pension at the maximum rate, or the 98% rate applying to those with an average of 40-47 contributions per year, and who do not qualify for means-tested pension payments because they have additional means above a certain level (e.g., in receipt of an occupational 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 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 yearly average of the pensioner. This will generally have the effect of increasing the yearly average of the pensioner, and may result in a higher rate of pension, depending on their circumstances.

Where people do not qualify for a maximum-rate contributory pension in their own right, the social protection system provides alternative methods of supporting such pensioners in old age. Where 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, and is subject to a personal means-test. Alternatively, they may qualify for a means-tested State Pension (non-contributory), based on their household means, amounting up to 95% of the maximum contributory pension rate. There are very significant income disregards in this means test, which result in over 70% such pensioners being paid at the maximum rate.

The Actuarial Review of the Social Insurance Fund confirmed that the Fund provides a better return to female rather than male beneficiaries. This is due to the redistributive nature of the Fund, where an “expensive” weekly PRSI contribution paid in respect of a highly paid worker results in the same entitlements as that paid on behalf of a part-time worker on the minimum wage. The system of benefits also results in cross subsidisation of those who have made fewer contributions into the system. For example, a person with a yearly average of less than 40% of the maximum may receive a contributory pension that is 85% of the maximum rate, where they do not alternatively qualify for a non-contributory pension at up to 95% of the contributory rate.

Over 54% of the payments made by my department to people over 66 are in respect of female beneficiaries, and so changes regarding the pensions paid by the department are likely to affect more women than men, whether they are rate increases, or savings such as these. The main focus of my department is in ensuring that the most vulnerable women and men are protected to the greatest possible extent, while ensuring there is a sustainable system where people are encouraged to work and contribute to the Social Insurance Fund, which pays for those contributory benefits and pensions.

The savings created by the new ratebands were an alternative to cutting the core rate of pensions, at a time when Exchequer savings were required, and other social protection payments were being reduced across the board. Had a similar approach been taken with pensions, affecting everyone over State pension age – regardless of their means and their contribution record – the hardest hit would have been pensioners with no additional incomes, notably those paid a State pension (non-contributory), and widows and widowers living alone on one pension payment. A significantly higher proportion of such pensioners are women, and this would have been expected to result in more women over 65 experiencing consistent poverty, relative to men.

The alternative approach regarding those over State pension age, taken by the Government at that time, made the State pension (contributory) for new pensioners more reflective of contribution history, while maintaining the rates of payment for non-contributory and Widows/widowers pensions, as well as for contributory pensions paid to those who had contributed into the Social Insurance Fund throughout their working lives (i.e. with a yearly average of 40 or more). This approach safeguarded those most vulnerable pensioners, whilst also avoiding a reduction for those who had paid into the system their entire working lives. The most recent CSO figures (from 2015) show that the rate of Consistent Poverty among women aged over 65 is 2.6%, compared to 2.9% for men in the same age group. Both of these figures are substantially lower than the rates of consistent poverty among the working age population.

I hope this clarifies the matter for the Deputy.