Dáil Éireann Debate, Tuesday - 28 March 2023
85. Deputy Brendan Smith asked the Minister for Social Protection the progress to date on introducing a total contributions approach, aligning a person’s contributory pension more closely with the contributions they make; and if she will make a statement on the matter. [15139/23]
View answerThe programme for Government 2020 commits to the introduction of a total contributions approach aligning a person's contributory pension more closely with the contributions they make. This will include a provision for credit contributions, ensuring that people who take time off work to care for loved ones are not disadvantaged. Will the Minister outline to the House the progress to date in dealing with this issue and making good the commitment in the programme for Government?
Currently, all applicants for the contributory State pension have their entitlement assessed under the yearly average method and the interim total contributions approach, receiving the payment that is most beneficial to them. The yearly average method has been in place since the introduction of the contributory pension in 1961 and calculates the average number of social insurance contributions per year, with payments made on a banded basis. Up to 20 years of disregards can be applied under the homemaker's scheme. However, it can result in anomalies. The interim total contributions approach was introduced in January 2018. It simply adds paid and credited contributions together. Some 2,080 contributions, equivalent to 40 years, are required for a full rate payment, with pro rata payments for those who have the minimum required 520 paid contributions but less than 2,080. Up to 20 years of home caring periods can be claimed for time spent providing full-time care to children under 12 or people aged over 12 who require an increased level of full-time care.
One of the landmark reforms to the State pension system which I announced last September is a ten-year phased transition to the total contributions approach and the abolition of the yearly average method. This fairer system will calculate pension payments based on the number of social insurance contributions made by a person over his or her working life, with significant pension credits granted to people who have taken time out of the workplace for caring responsibilities. During a transition period, individual pension rates will be based on the best of the total contributions approach or a rate based on a mix of the yearly average and total contributions approaches, with the proportion accounted for by yearly average reducing from 90% to 0% over ten years and the proportion accounted for by the total contributions approach increasing commensurately. Officials in my Department are currently working on the legislation and systems to support the introduction of this change, which will be effective from 2024. I hope this clarifies the matter for the Deputy.
I welcome the progress the Minister outlined. We all remember that back in 2012, there were some changes at that time to the method of calculation which caused many difficulties for people who had worked for more than ten years full-time but had insurance contributions going back many years. I came across one case of a person who came to Dublin and worked in a pub for two weeks at 17 or 18, went to England, had no insurance contributions and then paid contributions for more than 20 years. When that person applied for a pension, it went back almost 40 years or more and he had a very poor average contribution. He had got work experience for two weeks with a publican in Dublin, who was a neighbour and a family friend. It deprived him of a decent pension. It was a total anomaly. Thankfully, that has been ironed out.
The phraseology I saw before was the total set of contributions. Is the Minister now saying that the total contributions model is more or less finalised within the Department?
Yes. We will move to a total contributions approach because it is a fairer approach. It means you get back what you paid in. It will be over a ten-year period so it will be gradual. We do not want to disenfranchise some people. When you change things, there are always those who are better off and those who are perhaps not as well off but we will do it very gradually, over a ten-year period. It will apply from the beginning of January. I am currently bringing through the legislation to make the changes for the pension reforms I announced last year. As part of that, I will also bring forward the pension for long-term carers, which the Deputy mentioned earlier to me. That means the State enhanced pension provision for long-term carers, that is, in excess of 20 years, will be introduced from January 2024. That will benefit people, especially many women, who gave up their jobs and have been caring for a child with a disability, for example, all their lives and then found they were not entitled to a pension. That will allow them contributions for the time they spent caring.
It is very important that people who were at home caring or who had to leave the workforce get the relevant credits.
This is a separate question. It was an issue that arose some years ago and I raised it with one of the Minister's predecessors. Farmers who had been on farm assist might have had a good year, gone off farm assist and through the fault of the Department, Revenue and their accountants, they were not alerted to the fact that they needed to be putting on a stamp. The Minister would have had some of the cases in her constituency - I had them - of those people who were affected having been in receipt of farm assist. The Minister may be able to check if those issues have been addressed and get the Department to drop me a note.
I came across a case recently where a gentleman had not quite made the 520 contributions. His wife is working and the household income deprives him of the non-contributory payment. He has no payment, but he is just short of 520 contributions. In the past, we had pro rata pensions for people who did not quite make the 520 contributions. Will the Minister give consideration to that again, with regard to cases such as this, where people might even get half a pension? This man might have 510 contributions but he cannot get any pension at all. The Minister might give consideration to this. We had that in the past where farmers, in particular, who came in late and did not make the full ten years were able to draw down the pro rata pension.
I am well aware of the cases raised by Deputies Smith and Stanton. One goes to one's accountant, especially if one is a self-employed farmer, and thinks one is getting advice, but sometimes one is not getting great advice because some of those who did not have to pay tax that year did not pay their PRSI. That is exactly what happened. When one reaches retirement age and discovers there are gaps in one's social welfare contributions, one can make an application to look at making up the payments, but that only goes back five years, as far as I understand it. I know Deputy Smith raised this with me before. I asked my officials to look at it. If it had been good news, I would have been back to the Deputy very quickly, but I think it was not quite as simple and straightforward as that. I will look at it again. I regularly see this situation. If there is one message to go out from the House this evening, it is for those people who find they do not have to pay tax, for whatever reason, to please make sure they pay their PRSI contribution, because they need it. That is for self-employed people.
