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Tuesday 20 March 2018

Explainer: What is the pension anomaly about?

Tens of thousands of pensioners missing out on up to €35 a week Stock image
Tens of thousands of pensioners missing out on up to €35 a week Stock image
Kevin Doyle

Kevin Doyle

Thousands of pensioners are missing out on up to €35 a week because of an anomaly in the system.

What are the anomalies the minister is trying to fix?

Pensions are calculated using a ‘yearly averaging’ system, which means it is possible for people to start paying PRSI later in their working life and still qualify for the maximum rate. An anomaly arose where people started work but then took time out for any number of reasons. Their pension entitlements are based on when they first began work, rather than the total number of years in paid employment.

Why are women more affected than men?

A majority of the 42,000 affected by the anomaly are women because it was common in years past for mothers to take time out of the workplace to raise children. Many of the women affected were subjected to the marriage bar which was in place until 1973. This is acknowledged by the Government. However, 42pc of those being short-changed are men.

What is the total contributions approach (TCA) now being adopted?

The Government is moving towards a TCA, which means that total PRSI contributions will be counted. A minimum number of payments over the lifetime of a worker will be required for the full State contributory pension. People with less payments will receive a pro-rata entitlement. This means when a person started working will no longer be a defining factor in their pension calculations.

What is the ‘Home Caring Credit’?

This new credit will be available to people who took up to 20 years out of the workplace in order to be a homemaker or carer. It may assist those with lower pension entitlements since 2012 to qualify for an improved rate under TCA.

When will the ‘fix’ be put in place?

The new TCA scheme and Home Caring Credit will come into effect from March 30. However, the Department of Social Protection says it will take several months to put the necessary IT in place to deal with the changes. As a result, pensioners won’t receive the higher rate until the first quarter of 2019. They will receive a lump sum with their arrears from March.

How will this be funded?

It is estimated the changes will cost €40m for 2018 and another €70m next year. The money will come from Budget 2019, which is due to be announced in October.

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