Dáil Éireann Debate, Tuesday - 20 February 2018
63. Deputy Willie O'Dea asked the Minister for Employment Affairs and Social Protection her plans to ensure that those that are the first to receive a pension under the total contributions approach will not be significantly financially disadvantaged and suddenly faced with a lower pension than they otherwise would have received under the yearly average approach; and if she will make a statement on the matter. [8307/18]
Amharc ar fhreagra75. Deputy Martin Heydon asked the Minister for Employment Affairs and Social Protection the process that is being undertaken regarding the recent changes announced to the contributory pension system; when reviews will commence; and if she will make a statement on the matter. [8416/18]
Amharc ar fhreagra86. Deputy Niamh Smyth asked the Minister for Employment Affairs and Social Protection her plans to reform the pension system which is perceived to discriminate against persons, mainly women, that took time out of the workforce prior to 1994 to care for children or elderly relatives; and if she will make a statement on the matter. [8403/18]
Amharc ar fhreagraI propose to take Questions Nos. 63, 75 and 86 together.
A policy to introduce the Total Contributions Approach (TCA) to pensions calculation was adopted by the then Government in the National Pensions Framework in 2010, as was the decision to base the entitlements of all new pensioners on this approach from 2020.
On the 23rd 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 under a total contributions approach which will include up to 20 years of a new HomeCaring credit.
The TCA will ensure that the totality of a person’s social insurance contributions - as opposed to the timing of them - determines their final pension outcome. In particular it will benefit people whose work history includes an extended period of time outside the paid workplace, while raising families or in a full-time caring role. Crucially, unlike the proposed Homemaking Credits which was proposed in 2010 as part of the National Pensions Framework, the HomeCaring Credit will apply to periods both before and after 1994, as for most people reaching pension age between 2012 and 2019, such periods, where they had them, occurred before 1994, and provisions restricted to periods after then are of little or no benefit to them.
This approach will make it easier for many post-2012 pensioners affected by the 2012 rate band changes who are currently assessed under the yearly average model, to qualify for a higher rate of the State Pension (contributory). A person who reached pension age after 1st September 2012 and has a 40 year record of paid and credited social insurance contributions, subject to a maximum of 20 years of the new HomeCaring credits, will qualify for a maximum contributory pension where they satisfy the other qualifying conditions for the scheme. Up to 10 years of other credits, for example, awarded when on Jobseekers or Illness Benefit, may also be used, subject to the total credits not exceeding 20 years.
So, for example, a person might receive a maximum pension based on 20 years paid PRSI contributions, 5 years jobseeker credits, and 15 years HomeCaring Credits (before or after 1994), over a 50 year period and qualify for a maximum rate pension, despite additional gaps of up to 10 years. Those with fewer contributions will have a pro-rata entitlement. For example, someone with 18 years PRSI contributions and 18 years homecaring may qualify for a 90% contributory pension.
Legislation has to be drafted and enacted to enable implementation of these arrangements and IT solutions in line with this legislation must be developed. Accordingly, it is planned that the reviews will commence at the start of Q4 of this year, with the first payments being made in Q1 2019.
Under the arrangements, post 2012 pensioners will not see their pension reduced by this change. If their rate is improved by the TCA calculation option they will benefit, but if their TCA calculation entitlement is lower, they will remain on their existing rate. Everyone on reduced rates will also continue to have access to the State pension (non-contributory), which provides a pension of up to 95% of the maximum contributory pension rate and includes generous income disregards.
As was understood by the then Government in 2010 when adopting the National Pensions Framework, there are those who are less likely to benefit from the TCA model, notably people with lower numbers of paid social insurance contributions, who have no significant homemaking/caring periods.
The final model of TCA for those reaching pension age from 2020 will be decided upon following a public consultation later this year, and I do not wish to pre-empt that process, nor the Government decision and legislation which will follow it. However, I can state my determination that adequate provision for home-carers will be an important factor in the final design. I can also say that I will ensure that there will continue to be a strong State pension (non-contributory), which ensures those with very limited PRSI contributions and/or home-caring periods can be guaranteed a decent standard of living in old age, regardless of their contributions to the Social Insurance Fund.
If everyone received the same rate under both systems, there would be no point in such a reform, and if the result of introducing TCA was to make the State pension system more expensive, it would undermine the long-term sustainability of the pension system, which would endanger the future pensions of the existing workers who fund the system now. This will be the system in place for the decades to come, and it will not be possible to simply provide everyone with a maximum rate pension, regardless of the contributions they have made inside and outside the home, and regardless of their means. Choices will have to be made, and the planned consultation will give an opportunity for people to express their views for consideration in making the final policy decisions. The final TCA model will seek to provide the most equitable outcomes, and ensure the current success of the State pension system in providing older people with a decent standard of living continues.
I hope this clarifies matters for the Deputies.
