I propose to take Questions Nos. 320 to 322, inclusive, together.
On the 23 January, the Government agreed to a proposal that will allow pensioners affected by the 2012 changes in rate bands to have their pension entitlement calculated by a new “Total Contributions Approach” (TCA) which will include up to 20 years of a new HomeCaring credit. Unlike the current Homemakers scheme, this credit will apply to periods both before and after 1994. This approach is expected to significantly benefit many people, particularly women, whose work history includes an extended period of time outside the paid workplace, while raising families or in a caring role. It will make it easier for such pensioners to qualify for a higher rate of the State Pension (contributory). The TCA will ensure that the totality of a person’s social insurance contributions - as opposed to the timing of them - determines a final pension outcome, and it also acknowledges, for the first time, the contribution made by home-carers in the period before 1994.
The Government is making this TCA option available to people earlier than planned to deal with the anomaly that has existed in the yearly averaging approach since its introduction in 1961, i.e., that two people with the same number of contributions could get paid different pensions because of differences in the length of time over which those contributions were made.
Those who are less likely to benefit from this TCA model are people with lower numbers of paid social insurance contributions, who have no significant homemaking/caring periods. However, it should be understood that no current pensioner will have a reduced rate of payment as a result of this announcement. Anyone who is not better off as a result of this proposal will remain on their existing rate of payment.
The TCA model of pensions calculation was first announced in the National Pensions Framework in 2010, as was the proposal to assess all new pensioners under this approach from around 2020. Officials in my Department have been working on the introduction of a TCA since 2015. The recent Actuarial Review of the Social Insurance Fund has been used to explore the costs of various options and to inform the design of the Total Contributions Approach. This Review was recently completed and published. The Department is now considering the costings produced. Later this year, it will publish a paper on the full TCA model to be introduced from around 2020 onwards. It will then engage in a public consultation on it. This consultation will be a key input to the design of the final structure of the TCA model, which will include the number of years required for a maximum rate of pension, and the treatment of credited contributions and homemaking periods, to be submitted to Government later this year. Subsequent to this, legislation will be introduced to the Oireachtas.
Therefore, it is not possible to extrapolate what a person’s pension may be subsequent to the introduction of the full TCA on the basis of the measures announced by the Government on 23 January 2018. Whether someone reaching pension age in 2020 or beyond will receive a higher or lower pension under the full TCA model will depend on a number of factors, including the final design of the scheme, and their own circumstances. The Deputy refers to “gaps in work years other than those spent caring or unemployed”, and these will include people who were in receipt of other payments such as Jobseekers or Illness Benefit, which also may attract credited contributions. People who were in receipt of an Invalidity Pension, or a Widows Contributory Pension, at the time they reach State pension age will generally receive a contributory pension at the maximum rate.
It should be noted that the examples the Deputy gives, e.g. where someone worked only 10 years, and have no other credited contributions (e.g. from periods on jobseekers benefit), nor home-caring periods (pre-1994 or post-1994), and yet are dependent upon the Irish State pension are highly unrepresentative of those on lower rate bands. Reckonable PRSI contributions can be awarded from ages 16 to 65 inclusive, or 50 full years. Most adults would have been engaged in some activity for most of that time that either attracted PRSI coverage, or which will attract HomeCaring Credits. Very few would have been resident all that time, but would have 40 years where they were neither covered for PRSI nor engaged in home caring.
People who spent time working abroad might be expected to have entitlements from their time spent in those countries, which may be co-ordinated under EU regulations or bilateral agreements, which can result in a more advantageous outcome for that pensioner. For example, the TCA will not benefit someone who arrives in Ireland in their early 50s, who can currently receive a full Irish pension for 10 years work, despite having significant additional pension entitlements accrued in another country over the previous 30 years. As in most countries, such Irish contributions will attract a partial contributory pension, proportionate to their contributions, and they will cease attracting higher pensions than those who may have contributed far more into the system. However, most will have significant contributions in another country which will attract a second pension from there,
While it is true that time spent in full-time education may result in several years when they did not pay into the Social Insurance Fund, a person has 50 years to build up their contributions record, and few if any people will study so many years, without part-time work attracting PRSI, that they will be unable to work up at least 40 years contributions.
People who have a lower State pension (contributory) entitlement can apply for and may qualify for a higher State pension (non-contributory) of up to 95% of the maximum contributory rate. This is a means-tested payment, but over 70% qualify at the maximum rate due to generous income disregards. If someone spent most of their working life not in employment and in receipt of social welfare payments, this will generally mean their income will increase by over €40 per week upon reaching State pension age.
I hope this clarifies the matter for the Deputy.