State pensions reform may hit early retirees, homemakers and carers

A “very significant reform” of the contributory pension scheme which has implications for early retirees, homemakers and carers is under way at the Department of Social Protection.

The reform centres around changes to the “average contributions” rule which determines how much a pensioner gets on retirement, the department said.

Since 1961, when pensions were introduced, contributory pensions were based on the average number of pension payments made per year of work.

Those who have an average of 48 to 52 weekly contributions per year receive the highest rate of pension, currently €233.30.

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Those with between 10 and 14 contributions per year currently qualify for the lowest rate of contributory pensions of €93.20.

To qualify for a State contributory pension a person must have a minimum of 10 weekly contributions per year. If not, they may apply for the means-tested non-contributory pension which is currently €219, and €229 for those over 80.

In the contributory pensions scheme, various “bands” of payment are available for averages between lowest and highest bands.

Averaging rule

However, assistant secretary general of the Department of Social Protection Tim Duggan said it was planned to end the averaging rule.

“The aim is to make the rate of pension more closely match contributions made by a person,” he said.

He acknowledged this was “a very significant reform with legal, administrative and technical details”.

Such a move could potentially reduce the entitlements for those who take time out to care for children or others while still wanting to stay within their payment band. But Mr Duggan told members of the Oireachtas Committee on Social Protection the perception that women received lower pensions because as homemakers they had fewer stamps was, in fact, changing. He said there were issues in the past for homemakers averaging lower contributions, but “millennials” were changing this pattern and he himself had male friends who were in the homemaking role.

He said 48 per cent of the PRSI-paying workforce were not women and the situation was evolving.

Longer lives

He said the changes to pensions were extremely complex but change was driven by three principles: people were living longer; the number of people in the pensions net had expended to include farmers and self-employed; and pensions in real terms were increasing.

To address this in part, he said, the Government had made changes in 2011 which would ultimately see the pensions entitlement age rise to 68 years. Mr Duggan said this was more closely in line with the scheme as originally introduced when men qualified at 70 years and women qualified at 68 years.

Depending on the year of birth, some people can currently qualify for the State pension from as early as 66 years.