Dáil Éireann Debate, Tuesday - 25 October 2016
299. Deputy Timmy Dooley asked the Minister for Social Protection the annual cost implication for reversing the qualification criteria for the contributory pension that came into effect as a result of the 2012 budget; and if he will make a statement on the matter. [31524/16]
View answerThe overall concern in recent years has been to protect the value of weekly social welfare rates. Expenditure on pensions, at approximately €7 billion, is the largest block of expenditure in my Department in the Estimate for 2016, representing approximately 35% of overall expenditure. Due to demographic changes, my Department's spending on older people is increasing year on year. Maintaining the rate of the State pension and other payments is critical in protecting people from poverty.
Each year more people are living to pension age and living longer in retirement. As a result of this demographic change, the number of State pension recipients is increasing by approximately 17,000 annually. This has significant implications for the future costs of State pension provision which are currently increasing by close to €1 billion every 5 years. The purpose of changes to the State pension age is to make the pension system more sustainable in the context of increasing life expectancy.
The conditions for the State pension contributory (SPC) are reviewed on an ongoing basis, and there have been a number of changes over the years which impact upon whether someone qualifies or not. The main such changes in recent years are as follows:
1. The Social Welfare and Pensions Act 2011 provided for the necessary amendments to increase the State pension age in line with the National Pensions Framework as set out in the EU/IMF Programme of Financial Support for Ireland. It provided for an increase in the age for qualification for the State Pension from 66 years to 67 years from 2021, and a further increase to 68 years from 2028. It also discontinued the State Pension (Transition) for new claimants with effect from 1 January 2014.
In 2013, the cost of the State pension (transition) was €137 million. While its abolition would not realise that saving in full, as some people who were affected would alternatively claim working age payments (although at a lower rate than that of the State pension), and some may have claimed an Increase for a Qualified Adult on their spouse's pensions, it is estimated that well over half of that cost may have been saved each year as a result of this measure.
It is estimated that the net saving in 2017 is likely to be in the region of €75-80 million.
2. “Developing the National Pensions System – Final Report of the National Pensions Board” published in 1993, recommended that the number of paid contributions required to qualify for a contributory pension should be increased to 520 (i.e. 10 years) and the necessary legislation to effect these recommendations was contained in Section 12 of the Social Welfare Act 1997 which provided for their implementation in two stages, with the paid contribution requirement being standardised at 260 from 2002, rising to 520 from April 2012.
At the time this measure was introduced, the Exchequer annual savings were expected to be in the region of €6m per annum in the short term, but rising substantially on a cumulative basis in the long term. It is not possible to state how much has been saved by this change now, as people who are below the current threshold will not generally make a claim to SPC.
3. As provided for in Budget 2012, from September 2012, new rate bands for SPC were introduced. The new bands, which replaced the bands which were in place from 2000-2012, 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.
Prior to these changes, someone with a yearly average of 47 contributions qualified for the same rate of payment (98% of the maximum rate) as someone with a yearly average of only 20 contributions, despite generally their much more significant PRSI record, and regardless of their means. A person with an average of 48-52 PRSI contributions per year over their working life received a weekly State pension of only €4.50 more than someone with a yearly average of 20 PRSI contributions.
It is estimated that the exchequer savings arising from the current rate bands (relative to the ones in place from 2000-2012) will be at least €50 million in 2017, and that this will rise at a rate of some €10m annually. This figure represents only the savings in respect of current SPC claims, and does not include savings where the person has claimed an alternative payment as a result of the bands, such as a Non-Contributory Pension or an Increase for a Qualified Adult.
For those with insufficient contributions to meet the requirements for a full rate SPC, they may qualify for a means tested State pension (non-contributory) which has a maximum personal rate of €222, which is 95% of the maximum rate of the SPC. Alternatively, if a person's spouse or civil partner is in receipt of an SPC they may instead qualify for an Increase for a Qualified Adult of up to €209, which is 90% of the maximum personal rate of the SPC.
I hope this clarifies the matter for the Deputy.
