Terence Flanagan
Question:433. Deputy Terence Flanagan asked the Minister for Social Protection the position regarding contributory State pensions (details supplied); and if she will make a statement on the matter. [58009/12]
View answerWednesday, 16 January 2013
Questions (433)
Written answers
I have not received any report from the OECD on this matter so I take it that the Deputy is referring to the Actuarial Review of the Social Insurance fund. The OECD, who I have commissioned to carry out a review of pensions policy in Ireland, has not yet submitted a report to me. Work on the OECD report is ongoing and I expect to receive the report in the near future.
My Department recently published the third actuarial review (Review) of the Social Insurance Fund (Fund) which informs both short to medium term and long term policy development in relation to the social insurance system generally. The main social insurance benefits paid by the Fund relate to retirement, illness, incapacity, unemployment, maternity and bereavement. It is funded by PRSI contributions from employees, employers and the self-employed, with a subvention from the Exchequer where there is a gap between income and expenditure. The Review covers a 55 year period from 2011–2066.
With regard to pensions, the Review indicates that taking recent and planned changes to pension eligibility into consideration, 14% of claimants will not receive a contributory pension. Recent changes introduced include future changes to State pension age, a minimum total paid contributions requirement and adjustments to pension rate bands. The 14% figure also applies in 2020, when a total contributions approach, rather than an averaging approach will be taken to calculating State contributory pension entitlement. Those who do not qualify and who have an income need may qualify for a means-tested non-contributory pension.
The recent changes to pension eligibility are reform measures to ensure the sustainability of the pension system. Attachment to the workforce is a key issue for the sustainability of pensions. Those who pay more into the Fund will be awarded a higher pension in retirement.
The Review confirms that benefits offer excellent value for money for those on the lower part of the income distribution, those with shorter contribution histories, and the self-employed. The social solidarity principle which underlies the Fund is reflected in the fact that, for those at the higher end of the income distribution, the Fund is redistributive and they generally get back less than they pay in. Those with lower earnings and those with shorter contribution histories will continue to obtain the best value for money from the Fund. This is because the negative impact of these changes continues to be outweighed by the lower contributions paid into the Fund in respect of these workers. The Review also looked at the value for money provided by the Fund on a range of individual scenarios and found that:
- Those on lower incomes fare considerably better than those on higher incomes.
- Those with dependants achieve better value for money (when assessing value for money on an individual rather than on a per household basis).
- Those with short contribution histories have the potential to fare better than those with full contribution histories, which is particularly helpful for women who take time out of the workforce for caring purposes.
- The Fund provides better value to female than to male contributors.
- The self-employed achieve very good value for money compared with the employed – when the comparison includes both employer and employee contributions in respect of the employed person.
- For those at the higher end of the income distribution, the Fund is redistributive and these individuals generally get back less than they pay in.
- Higher value for money is achieved where benefits in addition to the State pension (contributory) are accessed.