Social Protection Minister: Pension anomaly 'won't be fixed until next Budget at the earliest'
Social Protection Minister Regina Doherty has said a pension anomaly which sees people, largely women, losing out on up to €35 per week will not be addressed prior to the next Budget.
Changes introduced in 2012 which altered how a person's state pension is calculated has seen women who took time out of work to raise families particularly disadvantaged.
The Government has pledged to address the issue but no solution has yet been decided on the minister said today.
"I will be putting proposals to Cabinet on how best to fix the anomaly without creating another," she said.
A report is currently being compiled by officials in her department looking at solutions to address the problem.
"The only commitment that we did give is that we recognise that it is something that affects currently 42,000 men and women and we are going to try and fix it," she told Newstalk Breakfast.
Ms O'Doherty said that the home-carers credit will not be extended to everyone. She also confirmed that changes to pension bands in 2012 will not be reversed.
"What we are going to try and fix in the medium term is those women and men who were particularly disenfranchised because of the length of their working life in working out their average contributions... meaning that they got less of a pension than people who worked for a shorter period of time," she said.
"The how is probably much easier than finding the money
"We recognise there is an anomaly and we're going to fix it," she said.
"At the very earliest it will be probably in next year's budget negotiations that the money will be or could be found," she said.
Why are women annoyed about State pension rules?
A: Many people, especially women, who have been reaching retirement age in the last few years are finding they are getting smaller pensions than they had been banking on. People who worked and made pay related social insurance (PRSI) contributions, or stamps as it used to be called, feel cheated. In effect, the goalposts were moved during the game.
What was the change?
A: The State pension is calculated by adding up the total number of PRSI contributions you make. This figure is then divided by the number of years between when you started work and when you are entitled to the pension. But many older women can find themselves punished by this system for taking time out of the workforce to raise a family. This is mainly because the weekly pension rate is calculated on the average number of contributions made over a working life.
Give me some more detail on that
A: Before 2012 there were four payment bands used to calculate how much of a State pension you get. Those with 48-plus yearly averaged contributions received the top rate of the pension payment. Those with between 20 and 47 contributions received 98pc, etc. In Budget 2011, then Social Protection Minister Joan Burton increased the number of bands to six. Crucially, band two was divided in three. And those in the lowest band, with 20 to 29 averaged contributions, got just 85pc of the maximum payment. Before this it would have been 98pc. The payments for what used to be bands three and four were reduced to 65pc and 40pc respectively.
Which groups lost out?
A: The two groups of pensioners this change affects the most are those with between 20 and 29 yearly averaged contributions and those with between 10 and 14 such contributions. For those in the 20 to 29 contributions group, the changes mean a weekly difference of €35 per week.
Give me an example?
A: Say a person worked for a few months in 1968. This person then left the workforce to raise a family – during which time she would not have made contributions – before going back to work in 2000. In this example, the average number of pension contributions would be divided by 48 (the number of years between 1968 and 2016). In effect, the weekly pension rate would be much higher if the individual had not worked in the summer 1968, according to detailed research by Age Action.
But women were not supposed to lose out for raising a family?
A: The Homemakers’ Scheme partly addresses gaps in employment due to caring responsibilities. The scheme provides a disregard of up to a maximum of 20 years for those who take time away from the workforce, to care full-time for children or a person with a disability. However, it only applies to periods of caring from 1994.
- Read more: 'If I had drawn the dole I'd now have a full entitlement' - Pensioner's frustration as payment is reduced
Tell me about the averaging rule?
A: The situation is made worse by the “averaging rule” used by the Department of Social Protection to calculate the number of contributions made by a worker. This is where the number of PRSI contributions a worker has made is divided by the number of years between her first day of work and her retirement. This means that someone who worked for a few months in the 60s and then went back to work in 2000 gets a far smaller pension than someone of the same age who just started work in 2000.
This sounds very unfair to me
A: Yes, it is an unfair system. People are getting very small pensions because of a decision they made to go to work in the 60s and 70s. They are being punished for working.
Is there any hope of going back to the old rules?
A: Finance Minister Paschal Donohoe says it could be 2021 before the situation is rectified.