Dáil Éireann Debate, Thursday - 2 February 2012
142 Deputy Frank Feighan asked the Minister for Social Protection when it is envisaged that employees will require 30 years of PRSI contributions to qualify for a full contributory pension; and if her attention has been drawn to the fact that this will have a detrimental effect on women who resigned from their work to take care of a family for a number of years. [6156/12]
Amharc ar fhreagraThe challenges facing the Irish pension system are significant. There are currently six people of working age for every pensioner and this ratio is expected to decrease to approximately two to one by 2050. In addition, those aged over 65 will account for a greater proportion of the population while the proportion who are of working age is expected to decline. With increases in life expectancy, more people are living to pension age and living longer in retirement. The period for which an average pension will be paid will be greater than the period for which a pension is paid at present. This has obvious and significant implications in relation to the future costs of State pension provision.
As part of a series of planned reforms to pensions a ‘total contributions approach' to State pension will be adopted to replace the current averaging system. The current proposed date for its introduction is 2020. Under this system, the level of pension paid will be directly proportionate to the number of social insurance contributions made by a person over his or her working life. This change reflects the potential that people now have to accumulate contributions as a result of the comprehensive nature of social insurance coverage which has been in place for 20 years, and the growth in the labour force over that period. Accordingly, a total contributions requirement of 30 years' contributions and credited contributions for a maximum pension will be introduced. The amount of credits which can be used to claim pension will be capped at 10 years. Under the new approach, a minimum rate of State pension (contributory) (SPC) will be payable at one third (10/30ths) of the maximum rate, which will be 30/30ths and a person will accumulate 1/30th of a pension for each year of contributions up to a maximum of 30/30ths.
I do not accept that total contributions will be detrimental to women. In fact, the opposite is envisaged as this reform will replace the current averaging system which can create anomalies, particularly for women. Under the current averaging system the average is calculated from the date a person enters into insurance until pension age whereas under the total contributions system a contribution has equal value regardless of at what stage in a person's working career it was made. This can allow people to achieve a higher average contribution rate — and thus a higher level of pension — even where they have a lower total number of contributions paid. This reform will bring transparency and fairness to the eligibility for pension and will assist people with gaps in their records.
The homemaker's scheme was introduced in 1994 to make qualification for State pension (contributory) easier for those who take time out of the workforce for caring duties. The scheme allows up to 20 years spent caring for children under 12 years of age or incapacitated adults to be disregarded when a person's social insurance record is being averaged for pension purposes.
The scheme will not, of itself, qualify a person for a pension. The standard qualifying conditions, which require a person to enter insurance ten years before pension age, pay a minimum of 260 contributions at the correct rate and achieve a yearly average of at least 10 contributions on their record from the time they enter insurance until they reach pension age, must also be satisfied. From April 2012, 520 contributions (10 years) will be required.
I am currently considering the introduction of a system of homemaker's credits to replace the current disregard from 2012 and allow backdating to 1994 for the purpose of the averaging system that will continue until the total contributions system is introduced. This means that people reaching pension age could have credits rather than disregards applied to their records to cover periods of care since 1994 (up to a maximum of 20 years) and would represent a significant improvement, particularly for women and those who take time out of the workforce for caring duties.
