Darren O'Rourke (Meath East, Sinn Fein)
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1234.To ask the Minister for Employment Affairs and Social Protection further to Parliamentary Question No. 182 of 1 May 2024, if she would consider using the last 40 years of contributions in cases where it has a greater benefit to the individual concerned whose pension is calculated on the yearly average method, or if it is her intention to allow this anomaly to remain and negatively affect the pension rate payable to a very significant number of citizens; and if she will make a statement on the matter. [30969/24]

Heather Humphreys (Cavan-Monaghan, Fine Gael)
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As previously outlined to the Deputy, 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.

To qualify for a full rate pension under the YA method, a person must have an average of 48 contributions per year since they first entered insurable employment.

To qualify for a full rate pension under the TCA method, a person must have 2080 contributions (equivalent to 40 years). These contributions can include up to 20 years HomeCaring periods or PRSI credits.

The TCA calculation, introduced for pensioners reaching State Pension Age from September 2012, included provision for the HomeCaring Periods Scheme. It acknowledged, for the first time, HomeCaring periods prior to 1994. TCA provides for up to 20 years of HomeCaring 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 HomeCaring periods/credits, qualify for a maximum contributory pension where they satisfy the other qualifying conditions for the scheme.

The YA 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.

Following on from the Pensions Commission's recommendations, a number of State pension reforms were enacted in the Social Welfare (Miscellaneous Provisions) Act 2023 on the 14th December 2023, which represent the biggest ever structural reform of the Irish State pension system.

Among these reforms, the 2023 Act introduced a ten-year phased transition from the Yearly Average method of calculation of State Pension (Contributory) to TCA as the sole method of calculation. TCA is a fairer and more transparent method for calculating the contributory pension and will remove the existing anomalies. The ten-year transitional arrangements are to avoid a ‘cliff edge’ effect. The first year of phasing-out will begin in January 2025. From 2034 the Yearly Average method of calculation will no longer be used, and all State Pension (Contributory) calculations will be done using the TCA method. Therefore, there no plans to make changes to the existing YA scheme. It should be noted that TCA provides recognition for 40 years of contributions up to the date of drawing down State Pension (Contributory) and provide a maximum rate of payment. The date of entry is no longer used as a divisor under this method.

I trust this clarifies the matter for the Deputy.