The State Pension (Contributory) is paid to people from the age of 66 (State Pension Age) who have enough Pay Related Social Insurance (PRSI) Contributions. It is not means tested.
One of the basic principles underpinning the Irish social insurance system is the contributory principle. Under this principle there is a direct link between the PRSI contributions that a person has paid and entitlement to a varying range of benefits and pensions.
At present the State Pension (Contributory) can be calculated under two different methods known as the Total Contributions Approach (TCA) and the Yearly Average (YA) approach. The elements which make up each method are set out in legislation. Since April 2019 all new State Pension (Contributory)applications are assessed under all possible rate calculation methods with the most beneficial rate paid to the pensioner.
The Total Contributions Approach to calculation, introduced for pensioners reaching State Pension Age from September 2012, included provision for the HomeCaring Periods Scheme. It acknowledged, for the first time, home caring periods prior to 1994. TCA provides for up to 20 years of home caring periods to be considered. Those with a 40 year record of paid and credited social insurance contributions, subject to a maximum of 20 years of credits / homecaring periods, qualify for a maximum contributory pension where they satisfy the other qualifying conditions for the scheme.
The Yearly Average method, in place since the introduction of the state pension in 1961, is a calculation where the number of reckonable weekly PRSI contributions are divided by the number of years between entering social insurance and state pension age. Entitlement is then banded, with a YA of 48 or more required for a full rate pension. The YA system measures the frequency rather than the number of contributions. Since 6 April 1994, the Homemaker’s Scheme has allowed up to 20 years spent as a homemaker to be disregarded when calculating the YA.
There are a number of anomalies associated with the YA system. Entitlement to a full pension can in some cases be achieved from as little as 10 years of social insurance contributions. This can happen where there is a shorter timespan between first and last social insurance contributions, i.e., someone who enters insurable employment at age 55 and works until they are pension age has time to gain the requisite 520 contributions to qualify for pension, and will have a higher yearly average than someone who has gaps in their record although they may have started work at 16.
A key concept in the YA calculation is that the number of contributions are calculated from the date of entry into social insurance to the end of the last complete tax year prior to the person's 66th birthday - covering the full period of their time contributing to the social insurance system, regardless of the classes of PRSI paid over that period.
Modified rate contributions are not reckonable for a full standard State Pension (Contributory). However, they are used when calculating entitlement to a mixed insurance pro-rata State Pension (Contributory).
A mixed insurance pro rata state pension is a pro-rata pension, introduced in November 1991, which is based on a combination of full and modified rate contributions. Prior to this, many persons who paid a mixture of full and modified rate social insurance contributions did not qualify for pension despite the fact that they paid full-rate contributions for part of their working lives. These persons may now qualify for a pension based on the number of full-rate contributions as a proportion of their total contributions i.e. full and modified rate.
There are also EU and Bilateral pro-rata State Pension Contributory pensions. The pension is a pro-rata payment based on the proportion of Irish social insurance contributions to the total number of contributions paid and/or credited, that is, Irish and other insurance combined.
Those who have not built up state pension contributory entitlements in other countries, which are not covered by these agreements, will have gaps in their PRSI record and, whatever the system in place, this could be expected to impact upon their ability to qualify for a maximum rate contributory pension.
The Pensions Commission was established in November 2020 to examine sustainability and eligibility issues with the State Pension and the Social Insurance Fund, in fulfilment of a Programme for Government commitment.
The Commission has now concluded its work and has submitted its final report to me. The report itself is extremely detailed, running to several hundred pages, and covers a range of complex matters in relation to the Pensions system which will require very careful consideration. I intend to bring the report to Government in the near future, after which it will be published. The Government has committed to taking action having regards to the Commission's recommendations within 6 months.
If a person does not satisfy the conditionality to qualify for State Pension (Contributory), s/he may qualify for the means-tested State Pension (Non-Contributory), the maximum rate of which is over 95% that of the maximum rate of the State Pension (Contributory). Alternatively, if his/her spouse is a State pensioner and has significant household means, his/her most beneficial payment may be an Increase for a Qualified Adult, based on his/her personal means, and amounting to up to 90% of a full contributory pension.
I hope this clarifies the matter for the Deputy.
