Dáil Éireann Debate, Thursday - 3 May 2012
174 Deputy Jack Wall asked the Minister for Social Protection her views on a submission (details supplied) regarding State pensions; her plans to address the issues raised; and if she will make a statement on the matter. [22417/12]
Amharc ar fhreagraI understand that the person in question has been in touch with my Department on a number of occasions and that a reply has issued to her on the queries raised by her which are similar to those raised here in this question. I also answered a parliamentary question on April 18th 2012 in relation to issues raised. I would again like to take this opportunity to outline why changes have to be made to pension provision. Social structures in Ireland are changing rapidly and the structures of our social support need to change to accommodate this.
The decision to make changes to State pension provision was taken in a budgetary context together with the changing demographics in Ireland and the fact that people are living longer and healthier lives. The number of people over age 65 is projected to treble by mid-century, by which time it is also expected that there will be less than 2 people of working age to every person aged 65 or over (compared to 6 today) with the associated increased in expenditure on State Pensions. It is for these reasons that State pension provision has to change and the change to the rate bands is one of the measures planned which aims to increase the sustainability of the Irish pension system. Ireland is facing the same challenges other countries are facing and has taking similar steps.
Considerable consultation has taken place in relation to the State pension including a Green Paper on Pensions which was published in 2007 followed by a national consultation. Furthermore I have commissioned the OECD to review the long term pension policy in Ireland. A core principle of sustainable social protection systems in advanced economies is that citizens receive benefits in proportion to their contributions.
Recognising that the State pension contributory is a very valuable benefit, it is important to ensure that those qualifying have made a sustained contribution to the Social Insurance Fund over their working lives thereby ensuring equity in the social welfare system. This has always been part of our pensions system and changes to State pension contributory provision which were announced in Budget 2012 put an increased emphasis on this. Recipients of the State pension contributory who have contributed more will receive a more generous pension. For example, currently a person with an average of between 20 and 47 PRSI contributions per year over their working life receives a weekly State pension contributory of only €4.50 less than a person with a yearly average of 48 or more PRSI contributions. This is neither fair nor equitable.
To address this, a change to the rate bands was one of the reform measures announced in Budget 2012. The rate of State pension contributory paid to new applicants will be proportionate to the rate band appropriate to the average number of contributions paid. Those who have fewer contributions will receive a lower rate of pension. Furthermore, the principle that the amount of pension paid should reflect the PRSI contributions paid over a working life needs to be adhered to if we are to be able to fund pensions into the future. By aligning the rate of pension paid with the number of contributions paid ensures that those who contribute more during a working life benefit more in retirement than those with lesser contributions. This is fair and equitable and puts us on a more financially sustainable track.
With effect from September 2012, the rate band of between 20 and 47 (24 and 47 for State pension transition) yearly average contributions will be replaced with new rate bands of between:
40 and 47 yearly average contributions,
30 and 39 yearly average contribution, and
20 and 29 yearly average contributions.
Therefore, the rate of State pension transition or State pension contributory paid to new applicants will be more appropriate to the average number of contributions paid over a working life. 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.
The total contributions approach, due to be implemented in 2020 and referred to in the question, will mean that the rate of pension payment made will be directly related to contributions made over a working life. The changes to rate bands due to commence in September 2012 goes somewhat towards this process. However, the averaging system, which is currently used will remain in place until the total contributions approach is implemented in full in 2020.
The homemaker scheme referred to, makes qualification for the State pension contributory easier for those who take time out of the workforce for caring duties. The scheme was introduced in and took effect from 1994. 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. This scheme can be more beneficial to women as they are more likely to have periods of caring for children or incapacitated persons.
The homemaker disregard (or credit) 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 520 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. I have no plans to back date this scheme. In relation to raising awareness of the changes to State pension, an information campaign has been undertaken by my Department where the changes to State pension have been extensively outlined to all of the representative organisations and members of the public.
