Q&A: What do reforms of the State contributory pension mean?

Minister for Social Protection Regina Doherty has announced significant reform of the State contributory pension. But what does it all mean, and will it work?

Who is affected by these changes?

It only affects people who have hit the State retirement age of 66 since September 1st, 2012, meaning many women affected by the “marriage bar” will not see any improvement in their pension. That is more than 40,000 people.

What’s changing?

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Two things. First, the Government is introducing a Total Contributions Approach. Essentially, you tot up all the weekly PRSI payments you make over your working life and if they equal 40 years (2,080 weekly payments), you get a full pension. Less, and our pension is reduced pro rata.

How does that differ from the current system?

At the moment, under “yearly averaging”, you must record an average of 48 PRSI contributions for every year between the time your start your very first taxable job and the day you turn 66. That means people with gaps in their PRSI record because they take time out to raise a family, to go abroad or for any other reason, lose out.

In addition, someone who starts work later in life can secure a full pension with just 10 years’ contributions while someone who worked for 30 years over a 50-year working life would get a lower payment. Also, at present, the reduced pensions are not calculated strictly pro rata but are grouped in bands.

Yearly averaging sounds unfair. Why was that used until now?

It has been in place since 1961, not long after the State pension was introduced. Back then, nobody could achieve the 40 years of contributions and yearly averaging was a way of allowing them to secure a full pension in a shorter space of time.

Will this be the new system for all pensioners?

Not yet. The Government plans to introduce it for all new pensioners from 2020 but, for now, people will be able to choose either the current system or the new total contributions approach – whichever is more beneficial to them. The department promises that no existing pensioner will see their pension reduced as a result of the change.

Anything else?

The Government is also introducing Homecaring Credits. These will allow people to count up to 20 years spent taking care of their family as part of the 40 years' pensionable service they will need for a full State pension.

Isn’t there something like that available already?

Close. A Homemakers’ Scheme was introduced in 1994 allowing women or men to receive PRSI credits for up to 20 years taken out of the workforce to care for children under the age of 12 or any ill or disabled person of any age.

Is there any minimum number of PRSI payments you need to make?

You need to have made at least 520 PRSI weekly payments to qualify for any State pension. This figure was set in 2012.

When is all this happening?

The new system comes into place on March 30th when the increases in weekly welfare payments under Budget 2018 are activated. However, as it will take a while to get the necessary arrangements and technology in place, people will not be contacted until later this year and the first payments will only be made early next year, although they will be backdated to the end of March 2018.

So what do I have to do now?

Nothing. If you are affected by the changes, the Department of Social Protection will be in touch with you later this year.