I thank the Chairman and the committee for the invitation to attend. I am joined by my colleagues, Ms Helen McDonald and Mr. Robert Nicholson, who are both principal officers in the pensions policy area of the Department. In my statement, I will try to set out and address the changes that have occurred in the area of pensions and related payments since the committee published its report last July. In short, there have been three main areas of material change: the first being the measures introduced in budget 2018; the second being the measures announced by the Minister towards the end of January this year to deal with people impacted adversely by the 2012 rate band changes; and the third being the publication of the Government's Roadmap for Pensions Reform 2018-2023 in February this year. I will take each of these in turn.
I refer first to the budget 2018 changes. I think the committee will know all of this already but I will outline the changes for the record. The rate of the State pensions was increased by €5 per week and proportionate increases were provided for those on reduced and qualified dependent payments. This brings the full-rate State pension contributory payment to €243.30 per week and the full-rate state pension non-contributory payment to €232 per week. These increases became effective in the last week of March this year. In addition, a Christmas bonus of 85% was applied to all core long-term social welfare payments, including pension payments.
A secondary and new telephone support allowance of €2.50 per week was introduced for those living alone who receive the fuel allowance. This measure is specifically targeted at the most vulnerable pensioners to provide them with access to personal alarms or phones for security. It is also aimed at encouraging social contact and minimising social isolation for those living alone. Payment of this new allowance began last week and benefits approximately 126,000 pensioners.
The fuel allowance payment was increased by one week from 26 weeks of payments to 27 weeks. As the committee is aware, this was subsequently extended by a further week as a once-off measure to assist people during the unseasonably cold weather at the start of March. In addition to that, although not a specific budget 2018 measure, since last October, recipients of the fuel allowance can now opt to receive it in two lump sum payments, the first in October and the second in January, rather than receiving it as a weekly payment. This facilitates people buying fuel in bulk and availing of any special offers or discounts on the purchase of the particular fuel that meets their specific needs. To date, in excess of 58,000 people have availed of that opportunity.
A further provision of €10 million was made to maintain and enhance the free travel scheme for the approximately 915,000 direct beneficiaries of that scheme. The purpose of this extra provision is to facilitate more private commercial operators joining the scheme for the first time, for existing participants sustaining existing routes and adding more of them and for operators to return to the scheme where they had previously withdrawn. This provision also allows for the discount applied on free travel payments to Bus Éireann Expressway to be reduced from 40% to 30%, putting it on an equal footing with other commercial operators participating in the free travel scheme. That summarises the measures brought in in budget 2018 and the things that have changed since the committee published its report last year.
Moving on to the second set of measures, on 23 January this year, the Government agreed to a proposal that will allow pensioners affected by the 2012 changes in rate bands to have their pension entitlement calculated by a new interim total contributions approach, TCA, which will include up to 20 years of a new home caring credit. This approach is expected to significantly benefit many people, particularly women, whose work history includes an extended period of time outside the paid workplace while raising families or in a caring role. It will make it easier for pensioners assessed under the yearly average model to qualify for a higher rate of the contributory State pension. This interim TCA, which we refer to as T12, will ensure that the totality of a person’s social insurance contributions, as opposed to the timing of them, determines the final pension outcome for recipients.
Under the new arrangements a person who reached pension age after 1 September 2012 and has a 40 year record of paid and credited social insurance contributions, subject to a maximum of 20 years of the new home caring credits, will qualify for a maximum contributory pension where he or she satisfies the other qualifying conditions for the scheme. Crucially, unlike the existing homemakers disregard system, periods of home caring before that scheme was introduced in 1994 may be recognised under the new scheme. Up to ten years of other credits, for example, when unemployed or ill, may also be used, subject to the total number of credits not exceeding 20 years. For example, a person might receive a maximum pension based on 20 years of paid PRSI contributions, five years jobseeker credits and 15 years home caring credits over a 50 year working period.
The interim TCA for pensioners assessed under the 2012 rate band changes, comes into effect from 30 March 2018. Pensioners do not need to contact the Department at this juncture. Instead, the Department will invite approximately 51,000 pensioners who were assessed under the current rate bands in place since 2012 to have their pensions recalculated under T12 to determine if they qualify for a higher rate of entitlement. The Department has established a dedicated unit to progress this initiative and that unit is currently working to design and develop the required processes, procedures, legislation, IT solutions and staffing needed to implement it. Once that work is completed, the Department expects to send out the invitations near the end of the year and to begin payments, including arrears for any period from 30 March 2018, from the first quarter of 2019.
On 28 February the Government of its comprehensive Roadmap for Pensions Reform 2018-2023. The roadmap details a series of 43 specific actions presented under six strands, which taken together, will modernise our pension system while continuing to target resources at those most in need. The first strand is reform of the State pension; the second strand concerns a new automatic enrolment system; and the third and fourth strands relate to occupational and private pension schemes and improving measures around those; the fifth strand relates to further reform of public service pensions provision; and the sixth strand is about supporting fuller working lives. However, for the purposes of this morning's meeting, I will concentrate briefly on the measures relating to the State pensions area and auto-enrolment.
The roadmap confirms that the Government will introduce the total contributions approach for all new claimants of the contributory State pension from 2020 onwards. To this end, the Minister recently launched a public consultation process on TCA and departmental officials will, next week, brief Oireachtas Members and their staff as part of this process.
It is important to note that, contrary to some erroneous reporting in the media, no decisions have been made on the key elements of the total contributions approach, such as the number of years of contributions or credits that will be required for a full pension; how self-employed persons who were not in the social insurance system prior to 1988 will be dealt with; or what transitional arrangements may be necessary or suitable on the introduction of the system.
The Minister has made it very clear she is keen to hear people's views on these things before determining recommendations for Government, hence the public consultation process. The roadmap also sets out how the Government will explore how future increases in State pension payments will be formally linked to the CPI and average wages. This requires study to determine what elements need to be included in calculations and over what periods. We will commence that later in the year. Furthermore, the roadmap sets out the Government's commitment to no further increases in State pension age before 2035, beyond the increases to 67 in 2021 and 68 in 2028 that are already legislated for. Any future changes in the State pension age after 2035 will be linked to increases in life expectancy.
Contrary to some media reporting, Ireland will not have the highest pension age in OECD countries by 2028. While Ireland has legislated for a specific age, quite a number of other OECD and EU countries have complicated formulas linked to life expectancy which will result in some of them having the same pension age or higher pension ages than Ireland.
There are also proposals in the roadmap to provide individuals with the capacity to defer receipt of the State pension contributory on an annual basis up to the age of 70. In return, an actuarial adjustment would be applied to increase the rate the person receives when the pension entitlement is drawn down. The objective is to expand cultural norms and perceptions around retirement age and support a positive ageing environment where older people are to the greatest extent possible encouraged and provided with greater flexibility to work to and beyond the normal retirement age if they so choose. In addition, the roadmap sets out how consideration will be given to flexibility with respect to the age at which people who do not have the requisite number of contributions for a full-rate State pension may continue to make social insurance contributions beyond the State pension age, again if the person so chooses.
I will address Ireland's supplementary retirement savings gap. The Government has confirmed that by 2022, it will begin implementation of an automatic enrolment retirement savings system. While employees will maintain freedom of choice to opt out should they so choose, the objective of this reform is to encourage personal long-term saving for retirement purposes and to help individuals survive what would otherwise be unwanted and significant reductions in living standards at retirement. An interdepartmental programme board has already been established to strategically steer this work and it is intended to launch an automatic enrolment straw-man proposal in the near future which will act as the basis for a full national consultation process. The Government has already made it clear it is determined the State pension is and will remain the bedrock of the pension system in Ireland. Accordingly, any auto-enrolment system will not replace but will simply supplement the State pension. It will result in members making defined contributions into personal accounts which in turn will be supplemented by contributions by employers and the State. However, many of the details of the design are yet to be determined and will be set out in the straw-man proposal I mentioned. While not an exclusive list, these will include matters such as the preferred operational structure and governance of the system, the target membership for the system, the contribution rates that may be required for that system, the financial incentives that could be provided by the State, the rate of savings or investment options that may be available to members, the terms for opt-out and re-enrolment and the options available for subsequent draw down of pensions. I have listed them to give the committee a flavour of the types of issues that need to be teased out in the public consultation and the final design of the system. While suggestions for each of these will be made in the straw-man they are not meant to be definitive. They are being provided to help stimulate debate and discussion and hopefully some degree of consensus over the course of the remainder of the year.
We expect that public consultation to begin in the very near future and to run until the last quarter of the year. It is intended it will include a number of fora to bring people together for that discussion and debate.
I hope this gives the committee a sense of the changes that have occurred over the past year and an overview of the major reforms planned over the coming months and years. My colleagues and I are happy to try to answer any questions the committee has.