Tuesday, 18 May 2021

Ceisteanna (80)

John Lahart


80. Deputy John Lahart asked the Minister for Social Protection the status of the commitment to benchmark pension rates to salaries and inflation, as contained in the Roadmap for Social Inclusion 2020-2025; and if she will make a statement on the matter. [26252/21]

Amharc ar fhreagra

Freagraí ó Béal (6 píosaí cainte) (Ceist ar Social)

The Minister is a breath of fresh air. The two previous speakers stole my thunder because I came in intending to say what they said. On behalf of my constituents, I thank all the officials in the Department for keeping the show on the road. What the staff of the Department of Social Protection have done throughout the country has been very underestimated, particularly when one considers that even now it is impossible to get in touch with line officials in other Departments, as was the case heretofore. I ask the Minister to please convey the thanks of the constituents of Dublin South-West.

In the context of my question, I ask the Minister to outline the status of the commitment to benchmark pension rates to salaries and inflation, as contained in the Roadmap for Social Inclusion 2020-2025, and to make a statement on the matter.

I thank the Deputy. I will pass on those thanks from the constituency of Dublin South-West.

In 2019, my Department undertook a consultation process with a number of interested stakeholders to hear their views on possible approaches to indexation of pensions and social welfare rates more generally. This process included discussion with representatives of the community and voluntary sector at the pre-budget forum in July 2019, as well as at bilateral meetings with stakeholders. The outcome of these discussions was considered and, in consultation with the Department of Public Expenditure and Reform, my Department has developed proposals for setting a formal benchmark for State pension contributory payments and the indexation of future changes in pension rates of payment.

The roadmap for social inclusion outlines the potential approach currently under consideration. This approach uses what can be described as a smoothed earnings system which would ensure that, over the long term, the relative value of welfare payments compared with market earnings would be maintained and that, over any short-term period, the real value or purchasing power of these payments would be protected.

I have asked my officials to continue to engage with their counterparts in the Department of Public Expenditure and Reform with a view to progressing this work.

That is very welcome news. At present, as the Minister knows, the social welfare rates, including the State pension, are determined as part of the annual budgetary process. There is no explicit link between the State pension rate and earnings or prices. This means the real value of the rate can change from year to year, depending on the general cost of living and the economic context.

As the Minister stated, the roadmap for social inclusion made an explicit and welcome commitment to provide income security for older people, including through benchmarking pension rates to salaries and inflation, and the establishment of a pension rates commission. While it is welcome to see the programme for Government commit to establishing a commission, it remains unclear what working timeline is in place to introduce this pensions benchmark. Can the Minister give a timeline for this, notwithstanding my welcome for her initial response?

In the two most recent budgets, while the primary rate of State pension payment did not change, a number of targeted measures aimed at older people mostly at risk of poverty were introduced. These included a €10 increase in the living alone allowance and increases in the rate of fuel allowance. In addition, legislation was passed to ensure that the State pension age remained at 66 years. That amounts to a cost of €221 million this year and in excess of €450 million in a full year.

Designing a system of benchmarking and indexation for State pension payments is complex, but I understand good progress has been made between officials in my Department and the Department of Public Expenditure and Reform. While the pandemic has interrupted implementation, I have asked my officials to make further progress on the issue in the coming months in advance of the budgetary process.

As the Minister knows, many people are heavily reliant on State pension payments. Future pensioners yet to come on stream are uncertain as to what rate of pension they will get. I acknowledge what the Minister said about the increases. I support all those increases, but they are legislated for and are not anticipated. They are not something people can count on. I urge the Minister, the next time I raise a question on the status of the commitment to benchmarking State pensions, to provide a clear answer on that. When will we have a clear answer on when it will be delivered?

The Minister spoke about the consultation process. What further detail on that consultation process can she give us? What future planned consultation must take place to ensure the methodology for any benchmarking reflects the needs and views of those in retirement?

As I have said, a possible approach to pensions indexation is under consideration. That uses what can be described as a smoothed earning system whereby the rate of pension would be linked, in the first instance, to a percentage of average earnings. In years when application of the benchmark rate is less than the rate of increases in prices, it would be linked to the rate of inflation.

That system addresses the two key challenges faced in the indexation system. The first is that a benchmark link to just one measure, for example, prices, can result in a widening of the gap between the incomes of people dependent on State pensions and other people in society. On the other hand, systems which use multiple benchmarks, for example, the so-called twin lock systems, can generate a ratchet effect, whereby increases in pensions outstrip both prices and wages, ultimately converging on and potentially overtaking wage levels. There is some work to be done on this. There is no point in saying otherwise, but we will continue with that work.

Question No. 81 replied to with Written Answers.