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Pension Provisions

Dáil Éireann Debate, Tuesday - 13 February 2018

Tuesday, 13 February 2018

Questions (647, 648, 649, 650)

Clare Daly

Question:

647. Deputy Clare Daly asked the Minister for Employment Affairs and Social Protection further to Parliamentary Questions Nos. 330 to 332, inclusive, of 1 February 2018, if her attention has been drawn to the conclusions of the recent actuarial review of the Social Insurance Fund in regard to using a 30-year basis for full pension entitlement (details supplied), in particular the conclusion that under a 30-year basis, a significant number of persons will be negatively impacted in view of the proposal to use a 40-year basis in the interim total contributions approach. [7241/18]

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Clare Daly

Question:

648. Deputy Clare Daly asked the Minister for Employment Affairs and Social Protection the guarantees or provision she plans to make for the first generation of pensioners under the total contributions approach from 2020 onwards in order that persons will not be faced with significant cuts to their pension expectations with no time to adjust their planning; and if her attention has been drawn to a conclusion in the national framework plan (details supplied). [7242/18]

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Clare Daly

Question:

649. Deputy Clare Daly asked the Minister for Employment Affairs and Social Protection if the home care credits in the total contributions approach will be allocated in the same way that unemployment credits are, namely, that in the same contribution year a person can have a mix of paid contributions and home care credits. [7243/18]

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Clare Daly

Question:

650. Deputy Clare Daly asked the Minister for Employment Affairs and Social Protection her plans to change a core principle of the State contributory pension by introducing means testing in view of the fact that she has referred to other sources of income in discussions on the impact of pension rate changes on affected pensioners. [7244/18]

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Written answers

I propose to take Questions Nos. 647 to 650, inclusive, together.

A policy to introduce the Total Contributions Approach (TCA) to pensions calculation was adopted by Government in the National Pensions Framework in 2010, as was the decision to base the entitlements of all new pensioners on this approach from around 2020. The move to such a system has been signalled, therefore, for a significant period of time.

As was understood at that time, and as underlined in the sentence the Deputy refers to from the Actuarial Review of the Social Insurance Fund, some people are paid a higher rate under the Yearly Average system, and some will be paid a higher rate under the Total Contributions Approach. If everyone was paid the same amount under the new system as they were under the old one, there would be little point in such a reform, and if everyone was paid either the same or more, it would add to the sustainability challenges already faced by the State pension system. However, past and future trends show that these challenges are going to place ever-increasing burdens in the coming years on workers who fund State pensions through the PRSI system. The proposed new TCA system strikes a balance between recognising periods outside the paid workforce while emphasising the need to maximise the paid element in the contribution conditions for pensions.

In 1997, expenditure on state pensions was IR£1.35 billion. However, by 2017 the cost of state pensions had increased to €7.27 billion. After adjusting for inflation, the cost had nearly trebled in real terms over a period of just 20 years, despite reforms made in that time. As the Actuarial Review the Deputy refers to pointed out, despite increases in the State pension age legislated for in 2021 and 2028, the ratio of workers to pensioners is projected to decline from 4.9 in 2015, to 2.9 in 2035, and to 2.0 by 2055.

While 2055 may seem far away to some, most of today’s workers will be in receipt of the State pension at that point, and I would hope that some current pensioners may still be in payment, and so we all have a stake in ensuring the system is sustainable to that date and beyond.

The TCA model proposed for post-2020 pensioners has yet to be decided upon, as the Government proposal will not be finalised until after a public consultation later this year. There are a number of factors, not just the number of years required for a full pension, which influence outcomes, and I will consider very carefully the priorities identified by stakeholders in that consultation process. Again, although the model and associated legislation hasn’t been finalised, it is my intention that it will be possible for Home-Caring credits to be allocated in the same year as paid contributions, where appropriate.

The TCA model being made available for post-2012 pensioners (up to 2019) is based on 40 years, but has very significant Home-caring provisions, much more beneficial than those in the 2010 proposals, that make it more advantageous for most of those disadvantaged by the Yearly Average approach. Take, for example, a pensioner with 18 years PRSI contributions, and who also spent 18 years in the home raising their children before 1994. Under the Yearly Average system, that person might have received a 75% pension before 2012, or a 65% pension if they retired post-2012. Under the 30-year model proposed under the National Pensions Framework and announced in 2010, they would qualify for a 60% pension. However, under the TCA model being made available to post-2012 pensioners, despite it being based on a 40-year model, they could qualify for a 90% pension, as a result of the recognition given to her home-caring periods.

There are others who would not benefit, and who would attract a higher payment under the current approach. For example, under the Yearly Average approach, someone who has already built up substantial state and private pensions in another country before moving to Ireland in their mid-50s, can built up a maximum rate pension in Ireland also, with just 10 years of contributions. This is clearly inequitable compared to the previous example, and while such people will continue to have access to the means-tested State pension (non-contributory) if they need it, which can be paid at up to 95% of the maximum contributory rate, their SPC entitlement will be lower under TCA than it would be at present.

It is through making savings from elimination of such anomalies that it is possible to improve benefits for those who, to date, have had insufficient recognition of their contributions in and out of the home.

I want to clarify, in response to one of the Deputies specific questions that there has not been any change to the State pension (contributory) in terms of means testing. As before, where someone has a SPC entitlement, they will be entitled to at least that amount, regardless of their means. They will also continue to have access to the alternative of the State pension (non-contributory), which is means tested, if that SPC entitlement is lower, and they will be paid whichever is the higher amount. This is not a change.

The importance of this safety net is crucial, and the level it is set at clearly informs policy regarding other schemes such as contributory pensions. However I have seen it misleadingly claimed in recent months that some pensioners are expected to live on €155 weekly, or less, even where they have no other means aside from the State pension. Such claims cause anxiety for many approaching pension age, and it is important for those with very few contributions, and with minimum additional means, to be assured that they will have an adequate pension in old age. Data from CSO and Eurostat show that the state pension system has been very successful in this regard, and demonstrate that a person of pension age in Ireland is considerably less likely to be in poverty than those of working age, who currently fund the system through their PRSI contributions and their taxes.

I hope this clarifies matters for the Deputy.

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