Parliamentary Question for the Minister for Social Protection (Joan Burton TD)
To ask the Minister for Social Protection regarding changes to the rate of payment of the State pension contributory, for persons with a yearly average of less than 40 contributions, in view of the disproportionate impact which this change is having on women, if she will review the changes made and examine if the system of payment can be made more equitable; and if she will make a statement on the matter.
The State pension is a very valuable benefit and is the bedrock of the Irish pension system. Therefore, it is important to ensure that those qualifying have made a sustained contribution to the Social Insurance Fund over their working lives and the reform measures introduced to date go somewhat toward that goal.
Currently a person’s date of entry into insurance is taken as the date used for averaging purposes. To qualify for a state pension a person must:
– have entered insurance before the age of 66;
– have at least 520 paid contributions and
– satisfy a yearly average (a yearly average of 48 contributions paid and/or credited is required for a full rate pension).
The State pension (contributory) is based on contributions paid and credited over the course of the pensioners working life, and those who had less attachment to the workforce qualify for lower pensions, accordingly, under that scheme. As provided for in Budget 2012, from September 2012, new rate bands for State pension were introduced. These additional payment rate bands more accurately reflect the social insurance history of a person and ensure that those who contribute more during a working life benefit more from this scheme in retirement than those with lesser contributions.
This does not mean that those less attached to the workforce will not have an income need in old-age, and for this reason the social protection system provides alternative methods of supporting such pensioners, based either on the contributions made by their spouse, or on their own needs.
An increase for a qualified adult, which is means tested, may be made in respect of an adult dependant who does not qualify for a pension in their own right, or who qualifies for a lower rate of pension due to gaps in his/her insurance. The means tested non-contributory pension may be available to an individual who meets the qualifying criteria.
The homemaker’s scheme makes qualification for State pension (contributory) easier for those who take time out of the workforce for caring duties. The scheme which was introduced in and took effect from 1994 allows up to 20 years spent caring for children under 12 years of age, or incapacitated people, to be disregarded when a person’s social insurance record is being averaged for pension purposes. In relation to women (who are usually the main beneficiary of the Homemakers scheme) and social insurance payments, it is worth noting that the Actuarial Review of the Social Insurance Fund 2012 confirms that the Fund provides better value to female rather than male contributors, due to the distributive nature of the Fund.
The combination of measures under the Social Protection code have resulted in very similar outcomes for male and female pensioners in Ireland, with poverty rates for women over 65 being slightly lower than those for men. The success of these measures in ensuring equality of outcomes for men and women over 65 is evidenced by the poverty statistics. The ‘at risk of poverty’ rate in 2011 was 10.1% for men, compared to 9.4% for women. The consistent poverty rates were 2.1% for men and 1.8% for women.
Budget 2006 saw the personal rate for the State Pension (contributory) set at €193.30. The current full rate of payment is 19% higher, despite the very significant budgetary adjustments required for most of the period since then. As regards those with a yearly average of less than 40 contributions, even for those with an average of only 20, such reduced rate State pensioners are paid a higher rate now than the full rate was at that time.
The yearly average test has been in existence since 1961 when contributory pensions were first introduced. The system was designed to ensure that people could qualify for contributory pensions immediately rather than waiting for contributions to build up and to suit a system where social insurance coverage was less comprehensive and people could move in and out of coverage as a result of the nature of their employment and/or earnings. Social insurance is now long established and is comprehensive in terms of the workforce covered.
It is planned that a total contributions approach to pension qualification will replace the current average contributions test for State pension (contributory). The proposed date for the introduction of this change is 2020, but this may be subject to change.