A NEW REPORT from Age Action has claimed that 35,000 people have had their pensions cut because of government changes to the State Pension introduced in 2012, with many losing more than €1,500 a year.
The group says that the overwhelming majority of those affected were women, which they say “aggregated an already serious inequality between the retirement incomes of men and women”.
The report says that the method used by the Department of Social Protection to calculate the number of PRSI contributions made by workers meant that pensioners were losing out.
The State Pension is calculated by adding up the total number of PRSI contributions you make and then dividing it by the number of years between when you started work and when you are entitled to your pension.
In Budget 2011, changes were made to the proportion of state pension you got based yearly averaged contributions you were made.
For example, before 2012, if you had contributed to the system for 25 years, you would get 98% of the maximum State Pension payment. However, after this time, that same person would only receive 85% of that full amount.
In effect, this would mean a loss of €30.10 per week.
Justin Moran, head of advocacy at Age Action, said: “We need to put to bed the myth that the State Pension was protected by the last government.
While those entitled to a full pension were unaffected, many of those who would have been in line for smaller pensions lost out.
Age Action says that women would be disproportionately penalised by this.
They point out that if a woman had started work early in life and then stopped working to raise a family before getting a job again in later life, their average contributions would go way down because the pension is measured from when you first started working.
Moran adds: “This means that someone who worked for a few months in the sixties 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.”
It’s an incredibly unfair system. People are getting very small pensions because of a decision they made to go to work in the 60s and 70s. They’re being punished for working.
Liz – not her real name – was affected by the band changes and is quoted in the Age Action report. She says: “I was so shocked, angry and annoyed when I first heard the amount I was to be awarded.
It brought back the anger I felt in 1972 when I had to leave my job. I believe I am being penalised for caring for my children.
They call on the Department of Social Protection to remove these changes and backdate payments to pensioners who’ve lost out since 2012.
Moran told TheJournal.ie that recent changes made to the PRSI system by Minister Leo Varadkar are “positive” but that they wouldn’t address this specific issue as it is designed to help people who haven’t retired yet to meet their contribution requirements.
Savings required
In response, the Department of Social Protection said that during the financial downturn, savings were required across Government departments.
“Instead of reducing the core weekly rates of State pensions for all pensioners, which would have included those pensioners who were solely dependent on that income (about 50% of such pensioners), it was decided to adjust the rate-bands on which contributory pensions are based. This took effect for people who reached pension age from September 2012.”
It said that the rate-bands are “still highly re-distributive, and someone with a 40% social insurance record will have an entitlement to 85% of the maximum rate”.
In practice, where a person has an entitlement to such a contributory pension, they will generally qualify for a higher rate of payment under another scheme, unless they have significant personal means.
The department said that it is estimated that reversing the rates of these bands to the same percentages as were in place prior to 2012 in the next Budget would carry a cost of at least €60 million in 2018, “and this annual cost would rise at a rate of €10 million per annum”.
Rather than use those funds in this manner, which would only benefit pensioners with other means above the pension itself, and who contributed less into the Social Insurance Fund, the increases in pension rates in 2016 and 2017 have been increased across the board, pro-rata where relevant, to the benefit of every pensioner.
The department said it is also expected that this will be the main focus of pension rate changes in Budget 2018.
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