The State pension is a very valuable asset and it is important, that those who receive it have made a significant contribution towards it during a working life as the State needs to ensure that it can continue to sustain pension payments in the future.
I understand the Deputy is referring to the current averaging system used in calculating State pension. One of the key factors when pension assessment is being made is the date of entry into insurance and it is from this point that the averaging is calculated.
The average contributions test is used in calculating pension entitlement and has been in existence since 1961 when contributory pensions were first introduced. The system was designed with a view to ensuring that people could qualify for contributory pensions from the outset rather than waiting for contributions to build up, and to suit a system where social insurance coverage was limited and people could move in and out of coverage as a result of the nature of their employment and/or their earnings.
There can be circumstances where a person with a shorter contribution history could receive a higher pension and this is why it is planned to introduce a ‘total contributions approach’ where pension payment made will more closely reflect contributions made over a working life. This will remove the current anomaly whereby some people qualify for higher pension payments even though they have fewer contributions (but a higher average) than others who do not qualify, or qualify for a lower pension, due to the average contributions test.
In introducing such a system, it is considered appropriate to have regard to 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 for a maximum pension will be introduced. The proposed date for its introduction is 2020, but I am keeping this date under review.
The rate band changes for State pension, introduced in September 2012 goes somewhat towards this measure of reform where pension paid more closely reflects contributions made over a working life.
The OECD Review of the Irish Pension System which was published in April 2013 also endorsed the move to a total rather than an average contributions test to determine entitlement to a State pension.
