For those people who reached state pension age since September 2012, two different methods of calculating their entitlement to a contributory state pension are used, those being the Yearly Averaging (YA) approach used since the inception of the contributory pension in 1961 and an interim Total Contributions Approach (TCA). The customer receives the higher rate of the two calculations. There are several different elements involved in each calculating method. The elements which make up each method are set out in the Social Welfare Consolidation Act, 2005, as amended. The specific legislation allowing for the introduction of the interim TCA and amending the Consolidation Act in that regard is contained in The Social Welfare, Pensions and Civil Registration Act 2018, as signed into law on 24 December 2018.
The National Pensions Framework (2010) (NPF) announced that the Government would introduce a new method for calculating State pension contributory (SPC) entitlements, from 2020. It proposed that the current YA system be replaced with a TCA which would make the level of pension paid “directly proportionate to the number of social insurance contributions made by a person over his or her working life.”
When the Government decided, in January 2018, to announce an interim TCA option for those who had been affected by the change in rate bands in September 2012, 40 years of contributions was set as the requirement for a full rate pension. Crucially though this interim TCA facilitates up to 20 years of HomeCaring periods to be added to paid contributions to increase a person’s rate. In addition, no start date was imposed on this facility (i.e., periods from before April 1994 were now allowed). It effectively meant that the minimum number of paid contributions of 20 years needed for a full rate pension would be as the National Pensions Framework suggested. However the additional scope for home caring would allow more people, particularly women who took time out of the work place to care for children and others, to earn a higher or the full rate pension.
The person in question applied for a pension and was assessed under the YA calculation method with having a yearly average of 37 based on 1,203 reckonable paid contributions and 94 reckonable credited contributions over 35 years. This placed the person into the 30-39 rate band which equates to a payment rate equal to 89.89% of the maximum rate pension in 2019 rates. When the person was assessed under the interim TCA, an additional 39 paid contributions, made in the person's 66th year, were included in the calculation (under the YA approach, contributions made after the end of the year in which the person attains 65 years of age are not counted as it can often result in a lower yearly average with a potentially lower pension payment rate). This assessment resulted in a payment rate equal to 89.52% of the maximum rate pension based on 1,242 reckonable paid contributions combined with 526 HomeCaring periods and 94 reckonable credits.
As the person is already in receipt of 89.89% of the maximum rate of pension under the YA approach, it is more financially beneficial for them to remain on their existing payment. A review outcome letter was issued informing the person concerned that their existing rate of payment will continue unchanged.
I hope this clarifies the matter for the Deputy.