State pension review could lead to increases for many people

More than 70,000 pensioners will receive letters shortly on a review of their State pension and explaining a new method of calculating entitlement to it. The review could lead to increases for a large number of pensioners.

Minister for Employment Affairs and Social Protection Regina Doherty said on Thursday that she had included enabling legislation for the new Total Contributions Approach to assessing State pension entitlement in the Social Welfare Bill, which was approved by Cabinet this week.

The Minister said she had included the legislation in the Bill to “hasten the changes for anyone who reached pension age on or after September 1st, 2012, and were awarded less than maximum rate, on post-budget 2012 rate bands”.

The 2012 budget introduced a range of new bands, which had the effect of reducing the pension paid to people who had not paid sufficient PRSI over their working lifetime to qualify for a maximum pension payout.

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The department has this week started sending letters out to people born after September 1st, 1946, who are already in receipt of the contributory State pension.

A further 8,000 letters will be sent in December to pensioners who are not resident in the State.

The letters will explain the review process and inform pensioners that the department will contact them directly with the outcome of their individual review.

“I am delighted to report that we are moving to make the necessary changes as fast as possible to ensure a speedy review outcome for all the pensioners involved,” the Minister said.

She said additional staff had been recruited to examine the PRSI records of the pensioners affected. Additional staff are also being recruited to conduct the actual individual reviews.

“I anticipate that the first review outcomes will be notified to pensioners in early 2019,” Ms Doherty said. Anyone moved to a higher pension rate will have their payment backdated to March 2018.

No reductions

If the new method of calculation would disadvantage pensioners, they will continue to receive their current payment.

“No pensioner will be worse off as a result of this review and I would expect that many will be positively impacted by the recalculation,” the Minister said.

However, the new regime will be used to assess entitlement for everyone retiring after it is introduced in 2020.

Until now, eligibility has been based on having a minimum number of overall PRSI “stamps” or contributions – currently 520 – and then working out the average of those contributions over your working life (from the date you first worked until State retirement age).

The weakness with the system was that if you only arrived in Ireland aged 55 and worked for 10 years, you would meet the 520 criterion and have an annual average of 52 stamps, qualifying for the top weekly pension payment.

However, if you started work at 17 and worked for 30 years – taking time out to rear a family or travel – your annual average, and therefore your weekly pension, would be lower even though you had contributed far more in social insurance.

The new “total contributions approach” will work off the basis that 40 years of contributions will guarantee a full pension – regardless of the length of your working life. Averaging will disappear. It will also allow credits for new home-caring periods to take account of time spent out of the workplace for parenting or caring duties.

The reviews are expected to take a number of months to complete due to the numbers involved. They will begin as soon as the Social Welfare Bill is signed into law.