I would like to say at the outset of this reply that it gives me no satisfaction to have to make any cuts in social welfare payments. However, given the scale of the fiscal crisis the Government inherited and because spending on social protection accounts for nearly 40% of current Government expenditure, savings have to be found in the social welfare system.
In the welfare package presented in Budget 2012, I sought to minimise the impact of the necessary adjustments in my Department's welfare expenditure on groups vulnerable to poverty and social exclusion. The Government has endeavoured insofar as it could to limit cuts in social welfare to households where there is some additional income over and above the basic social welfare payment and in that regard, successfully avoided any general reduction in primary weekly welfare payments.
In addition to the Budgetary imperative, there is an important long-term policy context for the proposed changes to State pension, including the proposed change to pension rate bands being introduced for new customers from September 2012, which is that the 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 a 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 and for the sustainability of pension provision into the future.
Reform of the State pension system is therefore necessary and the proposed changes to the rate bands, outlined in Budget 2012, are part of the reform process under way in my Department. In this context, there are a number of changes planned to State contributory pensions. The changes are as follows:
The minimum paid contributions requirement for State pension (transition) (SPT) and State pension (contributory) (SPC) will increase to 520 in April 2012 as provided for in legislation since 1997.
State pension age is being increased gradually to 68 years. This will begin in 2014 with the standardisation of State pension age at 66 and SPT will no longer be payable to those who reach age 65 in 2014 or later. State pension age will be increased to 67 years in 2021 and to 68 in 2028.
As announced in Budget 2012, a change to the rates bands for contributory pensions is being introduced from September 2012. This supports the policy objective of aligning the proportion of pension paid with the person's contribution to the PRSI system over a working life. This policy needs to be adhered to if we are to be able to fund pensions into the future. Currently a person with an average of 20-47 PRSI contributions per year over their working life receives a weekly State pension of only €4.50 less than a person with a yearly average of 48 or more PRSI contributions, a situation which is neither fair, equitable nor sustainable.
With effect from September 2012, the rate band of between 20 and 47 yearly average contributions will be replaced with new rate bands of between:
(i) 40 and 47 yearly average contributions,
(ii) 30 and 39 yearly average contribution, and
(iii) 20 and 29 yearly average contributions.
Therefore, the rate of State pension paid to new applicants will be appropriate to the average number of contributions paid. Those who have fewer contributions will receive a lower rate of pension. The maximum rate is unchanged as is the rate for those with yearly average contributions of between 40 and 47. While existing pension recipients are unaffected the changes proposed will apply to new claimants from September 2012.
For those claimants who qualify for a reduced rate of State pension (contributory) and have income needs, they may qualify, depending on their means, for a higher rate of State pension (non-contributory).
Details of the new rates bands for both State pension (transition) and State pension (contributory) are set out in the tables below.
Finally, the current proposed date for the introduction of the ‘total contributions approach' to State pension is 2020 and there are no plans at present to bring this forward to 2012.
New State Pension (Transition) Rates
|
Yearly Average Contributions
|
Personal Rate Per Week
|
|
€
|
|
48 or over
|
230.30
|
|
40-47
|
225.80
|
|
30-39
|
207.00
|
|
24-29
|
196.00
|
New State Pension (Contributory) Rates
|
Yearly Average Contributions
|
Personal Rate Per Week
|
|
€
|
|
48 or over
|
230.30
|
|
40-47
|
225.80
|
|
30-39
|
207.00
|
|
20-29
|
196.00
|
|
15-19
|
150.00
|
|
10-14
|
92.00
|
