The 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, representing over 36% 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 is to make the pension system more sustainable in the context of increasing life expectancy.
Accordingly, the conditions for the State pension (contributory) are reviewed on an ongoing basis. A number of significant reforms to State pensions were introduced in recent years which have allowed my Department to maintain the value of the State pension, and indeed increase it in the last two Budgets. 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 discontinued the State Pension (Transition) for new claimants with effect from 1 January 2014, thereby standardising the State Pension age at 66 years. 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.
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). 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.
3. As provided for in Budget 2012, from September 2012, new rate bands for State pension (contributory) were introduced. This resulted in one of the bands (in respect of those with a yearly average of 20-47 contributions) being replaced with three bands (in respect of yearly averages of 40-47, 30-39, and 20-29 respectively). These additional bands more accurately reflect the social insurance history of a person and ensure that those who contribute more during a working life are likely to benefit more in retirement than those with lesser contributions.
The National Pensions Framework (2010) proposed that a “Total Contributions Approach” (TCA) should replace the yearly average approach, for new pensioners from 2020. The aim of this approach is to make the rate of contributory pension more closely match contributions made by a person. Officials of my Department are currently working on the development of the TCA with a view to making proposals for consideration later in the year. This is a very significant reform with considerable legal, administrative, and technical elements in its implementation. Following completion of the Actuarial Review of the Social Insurance Fund later this year, a refined proposal will be developed. My Department will conduct a period of consultation with relevant stakeholders including interest groups, representative bodies and the Oireachtas. Following the consultation period, I will submit a proposal to Government seeking approval of the new approach.
I hope this clarifies the matter for the Deputy.
