Willie O'Dea (Limerick City, Fianna Fail)
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655. To ask the Minister for Employment Affairs and Social Protection the estimated cost of reversing changes made to the eligibility criteria for the State pension (contributory) in 2012; and if she will make a statement on the matter. [42533/17]

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 SPC 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 from January 2018 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 (e.g. it would be expected to cost some €70 million in 2019). This estimate reflects the numbers of those in receipt of reduced rate SPC payments, and does not include those who are claiming an alternative payment at a higher rate than their reduced SPC entitlement, and who might qualify for a higher rate of SPC if such a change were introduced. This estimate also assumes that any such change to rate bands would generally be implemented from a current date and as a result would not generate retrospective arrears.

The main beneficiaries from such a decision would be younger (post September 2012) pensioners who both:

a. haven’t sufficient paid contributions into the Social Insurance Fund to qualify for a contributory pension at the maximum rate, or for the 98% rate applying to those with a yearly average of 40-47 weekly PRSI contributions paid or credited per year, and

b. do not qualify for means-tested pension payments at the maximum rate because, in addition to their state pension, they also have means above a certain level (e.g. they are in receipt of an occupational pension and/or own a second residential property).

The savings created by the new rate bands 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 only one pension payment. A very significantly higher proportion of such pensioners are women, and this approach would have been expected to result in more women over 65 experiencing consistent poverty, relative to men of the same age. The most recent CSO statistics show that this negative outcome has been avoided.

The alternative approach, taken by the Government at that time, made savings in respect of the State pension (contributory) by making rates of payment 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 avoiding undermining the contributory system, which is the basis for collection of PRSI, which funds the SPC on a ‘Pay-As-You-Go’ basis.

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 and capital disregards in these means tests, which result in the large majority being paid at the maximum rate.

I hope this clarifies the matter for the Deputy.