Dáil Éireann Debate, Tuesday - 25 March 2014
532. Deputy Michael McGrath asked the Minister for Social Protection the current estimate of future liabilities her Department is facing in respect of the State pension contributory and State pension non contributory; and if she will make a statement on the matter. [13632/14]
View answerSection 10 of the Social Welfare Consolidation Act 2005 requires my Department to commission an actuarial review of the position of the Social Insurance Fund (SIF) at 5-year intervals. The third Actuarial Review of the SIF was published in 2012 and covers the period to 2066. Projections in respect of the State pension (contributory) are as follows:
|
- |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2030 |
2040 |
2050 |
2060 |
2066 |
|
State Pension (contributory) (€ Billion) |
4.783 |
5.172 |
5.584 |
6.012 |
6.486 |
6.927 |
11.009 |
17.956 |
26.746 |
33.233 |
36.562 |
These projections were made on a ‘no policy change’ basis.
The increase in State pension contributory expenditure reflects changing demographics with older people living longer. The number of State pension contributory recipients at the end of 2013 was 329,531 and this number is increasing by approximately 17,000 each year.
State pension (non-contributory) is a means tested payment, funded directly from the Exchequer, rather than the SIF and there are no corresponding projections. As a consequence, in addition to the variables such as demographic change, it is also impacted by other pressures such as: social Insurance coverage (increases in this result in higher numbers qualifying for the contributory pension, thereby reducing the number of non-contributory pensioners); private pension coverage (again, increased coverage would be expected to reduce pressures on the non-contributory pension); general economic trends, which are likely to increase or decrease the means available to those over 66, thereby impacting on the numbers who qualify for non-contributory pensions.
The widening of the applicability of PRSI in recent decades has seen a small downward trend in the non-contributory pension. In 2009, the cost of this payment amounted to €1.0 billion, whereas by 2012 this had declined to €963 million (96,129 recipients), and this reduction is expected to continue as the numbers qualifying for the contributory pension increases. It is, of course, significantly less than the corresponding increase in the State pension (contributory).
The increase in the expenditure projected for the contributory pension would be expected to increase future shortfalls in the SIF, and in time become unsustainable without pension reform. In order to provide for sustainable pensions and to facilitate a longer working life, a number of significant reforms to State pensions have recently been introduced as follows: the standardisation of State pension age to age 66 began in 2014. While the current State pension age of 66 remains, the State pension (transition) which applies for one year for persons of age 65 has ceased from 1st January 2014; State pension age will increase further to 67 in 2021 and 68 in 2028; with effect from April 2012, and as provided for in legislation in 1997, the number of paid contributions required to qualify for a State pension increased from 260 paid contributions to 520 paid contributions; as provided for in Budget 2012, from September 2012, new rate bands for State pension were introduced. These additional payment rate bands more accurately reflect the social insurance history of a person and ensure that those who contribute more during a working life benefit more in retirement than those with lesser contributions; as announced in Budget 2012, the period for which a claim for State pension can be backdated is six months. This change came into effect in April 2012.
Following considerable policy analysis, it is planned to introduce a ‘total contribution approach’. The level of pension paid will be directly proportionate to the number of social insurance contributions made by a person over his or her working life. The proposed date for the introduction of a move to a total contributions approach is 2020, but this may be subject to change.
