Dáil Éireann Debate, Thursday - 5 May 2016
10. Deputy Finian McGrath asked the Tánaiste and Minister for Social Protection to support a matter (details supplied) regarding homemakers, pre-1994 and the State pension (contributory); and if she will make a statement on the matter. [9321/16]
Amharc ar fhreagraThe State pension contributory is a very valuable benefit and is the bedrock of the Irish pension system. Therefore, it is important to ensure that those qualifying have made a sustained contribution to the Social Insurance Fund over their working lives. To ensure that the individual can maximise their entitlement to a State pension, all contributions paid or credited over their working life from when they first enter insurable employment until pension age are taken into account when assessing their entitlement and the level of that entitlement. Since 1961, when contributory pensions were introduced, the average contributions test has been used in calculating pension entitlement. Once over 16 years of age, the date a person enters into insurable employment is the date used for averaging purposes.
The yearly average test has been in existence since 1961 when contributory pensions were first introduced. The scheme was designed with a view to ensuring that some people could qualify for contributory pensions immediately and to suit a system where social insurance coverage was limited. The rate of payment depends upon which band a yearly average falls into. Those with a yearly average of 48 or more contributions may receive a 100% pension, whereas, for example, those with a yearly average of 20 contributions are in a lower band, and receive a pension at 85% of the maximum rate (plus allowances where applicable).
As provided for in Budget 2012, from September 2012, new rate bands for State pension (contributory) were introduced, with six bands replacing the four which were in place up to then. These new bands more accurately reflect the social insurance history of a person and ensure that, generally, those who contribute more during a working life benefit more in retirement than those with lesser contributions.
The homemaker’s scheme makes qualification for a higher rate of State pension (contributory) easier for those who take time out of the workforce for caring duties. The scheme, which was introduced in and took effect from 1994, allows up to 20 years spent caring for children under 12 years of age (or caring for incapacitated people over that age) to be disregarded when a person’s social insurance record is being averaged for pension purposes, subject to the standard qualifying conditions for State pension (contributory) also being satisfied. This has the effect of increasing the yearly average of the pensioner. The scheme does not involve the award of credits. There are no proposals to backdate the scheme to cover periods of homemaking prior to 1994, due to the very significant costs which would be involved.
Work has commenced to replace the ‘yearly average’ system with a ‘total contributions approach’ where the number of contributions recorded over a work life will more closely reflect the rate of pension payment received. It is expected that the total contributions approach to pension qualification will replace the current average contributions test for State pension (contributory) for new pensioners from 2020, although that date is subject to change, as this is a very significant reform with considerable legislative, administrative, and technical aspects to be addressed in its implementation. When proposals are agreed, legislation will be brought forward to underpin the necessary changes. The changes will be announced well in advance of introduction, to enable those workers affected to include the new factors into their retirement planning.
It is worth noting that the most recent Actuarial Review of the Social Insurance Fund (2012) confirmed that the Fund provides better value to female rather than male contributors. This is due to the distributive nature of the Fund. For example, those with a yearly average of only 38% of the maximum may qualify for 85% of the maximum rate.
It should also be noted that, where people cannot qualify for a full rate contributory pension as a result of an intermittent PRSI record, the social protection system provides alternative methods of supporting such people in old age. For example, if their spouse has a contributory pension, they may qualify for an Increase for a Qualified Adult amounting up to 90% of a full rate pension, which by default is paid directly to them. Alternatively, they may qualify for a means-tested State pension (non-contributory), amounting up to 95% of the maximum contributory pension rate.
