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State Pensions

Dáil Éireann Debate, Thursday - 6 October 2016

Thursday, 6 October 2016

Questions (42, 46)

Paul Murphy

Question:

42. Deputy Paul Murphy asked the Minister for Social Protection his views on the establishment of a universal single-tier State pension rather than the existing two-tier structure, which gives a lower rate for those who have been out of work caring for family members or in training for a longer period in their working life; and if he will make a statement on the matter. [28794/16]

View answer

Mick Barry

Question:

46. Deputy Mick Barry asked the Minister for Social Protection his views on the establishment of a universal single-tier State pension rather than the existing two-tier structure, which gives a lower rate for those who have been out of work caring for family members or in training for a longer period in their working life; and if he will make a statement on the matter. [28788/16]

View answer

Written answers

I propose to take Question Nos. 42 and 46 together.

The State pension contributory is a very valuable benefit and is the bedrock of the Irish pension system. Therefore, it is important to ensure that those qualifying have made a sustained contribution to the Social Insurance Fund over their working lives. To ensure that the individual can maximise their entitlement to a State pension, all contributions paid or credited over their working life from when they first enter insurable employment until pension age are taken into account when assessing their entitlement and the level of that entitlement.

One of the conditions of the State pension contributory is that a person needs a minimum of 520 weekly contributions (i.e. 10 years) paid since entering insurable employment. If a person does not have this minimum number of contributions paid, they will not generally have an entitlement to this particular pension, either at a full or reduced rate. Since 1961, when contributory pensions were introduced, the average contributions test has been used in calculating the rate of pension entitlement. Entitlement is banded, with the maximum rate payable to those with a yearly average of 48-52 contributions, and the minimum rate payable to those with a yearly average in the range of 10-14 contributions per year. Even if someone has only 10 years (520 weeks) of paid reckonable contributions between their 16th and 66th birthdays, they would generally qualify for a State pension (contributory), although the rate payable would vary depending on their circumstances, and may not always be their most advantageous payment to claim.

The homemaker’s 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 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 when a person’s social insurance record is being averaged for pension purposes, subject to the standard qualifying conditions for State pension contributory also being satisfied.

There are a number of reasons why someone might not have sufficient contributions paid to qualify for a State pension (contributory). Some would have been employed in the public service for a significant period, others would have worked abroad during their working life and qualified for a foreign pension based on foreign contributions, and some would have spent significant periods out of the labour force altogether for a number of reasons, e.g., caring for children or elderly relatives, prolonged periods of unemployment or incapacity and other circumstances.

Where people who were unattached to the labour market during most of their adult lives cannot qualify for a contributory pension in their own right as they have paid few or no contributions, or cannot qualify for a full rate as a result of an intermittent PRSI record, the social protection system provides alternative methods of supporting such pensioners in old age. Therefore, if 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. Alternatively, they may qualify for a means-tested State Pension (non-contributory), amounting up to 95% of the maximum contributory pension rate.

There are no plans to abolish either the State pension (contributory), or the State pension (non-contributory), as both are very effective in ensuring that older people have a decent standard of living. In addition, workers who pay PRSI over their working lives receive a benefit which allows them make further provision for their retirement without losing that benefit via a means test.

Work is underway to replace the ‘yearly average’ system with a ‘total contributions approach’. Under this approach, the number of contributions recorded over a working life will be more closely reflected in the rate of pension payment received. The position of gender and gaps in contribution records will be considered very carefully in developing these proposals. It is expected that the total contributions approach to pension qualification will replace the current average contributions test for State pension (contributory) for new pensioners from around 2020. This is a very significant reform with considerable legal, administrative, and technical components to be put in place prior its implementation.

I hope this clarifies the matter for the Deputy.

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