Dáil Éireann Debate, Thursday - 8 March 2018
581. Deputy Clare Daly asked the Minister for Employment Affairs and Social Protection if it is planned to allow for a phasing in of the new total contributions approach for the first ten years or so to reduce unfair and sudden losses to the first generation of new pensioners from 2020 onwards in view of the recent publication of the Roadmap for Pensions Reform 2018-2023. [11393/18]
Amharc ar fhreagra582. Deputy Clare Daly asked the Minister for Employment Affairs and Social Protection the reason for the jettisoning of the 30 year base for pension calculation used in the National Pension Framework and explored in the Actuarial Review of the Social Insurance Fund 31 December 2015, in view of the recent publication of the Roadmap for Pensions Reform 2018-2023. [11394/18]
Amharc ar fhreagraI propose to take Questions Nos. 581 and 582 together.
A policy to introduce the Total Contributions Approach (TCA) to pensions calculation was adopted by Government in the National Pensions Framework in 2010, as was the decision to base the entitlements of all new pensioners on this approach from around 2020.
Calculation of pension under the Yearly Average Approach and under the Total Contributions Approach will give different outcomes, and people may get a higher or lower payment depending on the approach used. If everyone was paid the same amount or more under the new total contributions approach system as they would have got under the old one, there would be little point in such a reform, and it would add to the sustainability challenges already faced by the State pension system. Trends show that these sustainability challenges are going to place ever-increasing burdens in the coming years on workers who fund State pensions through the PRSI system. The proposed new TCA system strikes a balance between recognising periods outside the paid workforce while emphasising the need to maximise the paid element in the contribution conditions for pensions.
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 TCA. The TCA model for post-2020 pensioners has yet to be decided upon, as the design will not be finalised until after a public consultation later this year. There are a number of factors, not just the number of years required for a full pension, which influence outcomes, and I will consider very carefully the priorities identified by stakeholders in that consultation process.
The interim TCA model being made available for post-2012 pensioners (up to 2019) is based on 40 years, but has very significant Home-caring provisions, much more beneficial than those in the 2010 proposals, that make it more beneficial for homemakers disadvantaged by the Yearly Average approach. This is because the 2010 model produces significantly worse outcomes for women, particularly where they have homemaking periods prior to 1994.
To take one example, a pensioner born in 1950 who reached pension age in 2016, who had 18 years PRSI contributions, a gap of 18 years raising her children when aged 24 to 42, and a yearly average of 15-19. Under the pre-2012 Yearly Average system, she might have expected a contributory pension at 75% of the maximum rate. Under the Post-2012 Yearly Average system, her entitlement would be 65%. Under the proposals announced earlier this year, she will qualify for a 90% pension. However, under the 2010 proposals, which had a 30 year base for a maximum pension, but which did not recognise home-making pre-1994, her entitlement would only be 60%. In taking a 40 year approach for this model, I have been able to have much more generous homecaring provisions, which largely benefit women who were disadvantaged by the previous system. It will still remain possible for others to qualify for a full rate contributory pension with 30 years of paid PRSI and 10 years of credits (e.g. from jobseeking periods), over the course of a 50 year period. Invalidity pensioners and Widows will continue to generally qualify for a full rate pension. Those who do not qualify for a full rate SPC on this basis will still be able to make a claim to the means-tested SPNC, which pays up to 95% of the maximum contributory pension rate.
Ultimately, for those retiring after 2020, the balance between the number of years required for a full pension and the level of recognition for homecaring periods will be decided after the consultation later this year, as will any transitional elements to the final proposal.
I hope this clarifies matters for the Deputy.
