Women to gain from state pension change, but some workers will be worse off

A new study from the Economic and Social Research Institute (ESRI) has also found that around one in eight ­workers will be worse off from the move to a new method of calculating the rate of state PRSI pension workers get.

Under current arrangements, the pension amount is based on average yearly contributions. This method has been criticised by the Organisation for Economic Co-operation and Development (OECD) as being overly complex.

It also throws up anomalies. The OECD has said it results in “inequitable treatment for people who have contributed for the same amount of time”.

Under the average yearly contributions method, people can qualify for a full pension after working for just 10 years.

This is despite the fact they may have made fewer PRSI contributions than others who have worked longer.

The average yearly contributions method is also seen to penalise women who took time out of the labour market.

Consideration can be given to years spent caring for others, but time spent caring before 1994 was not accounted for.

Those with an average of 48 to 52 contributions per year receive the maximum state pension rate, while those below this are placed into bands and receive a lower amount.

From 2018, what the ESRI says is a “more straightforward and fairer app­roach” was introduced, called the Total Contributions Approach (TCA).

At the moment, the two systems of calculating the amount of state pension a person is to receive are operating side by side.

There will be a large increase in the proportion of women qualifying for the maximum pension rate

The calculation method that most benefits the person retiring is used.

But the Government has decided that from 2034, entitlements will be based fully on the TCA.

This approach counts all PRSI contributions, along with time spent caring for others.

The method means that those with 40 years’ worth of contributions (including credits for caring) qualify for the maximum state pension, while those with less receive a proportion of the full rate.

In a report, ESRI associate professor Dr Claire Keane found that for 83pc of men and 56pc of women there will be no change in their state pension entitlement.

She found the main difference is that there will be a large increase in the proportion of women qualifying for the maximum pension rate.

This will rise from 54pc to 75pc of women qualifying for the top rate, which at the moment is €277.30 a week.

However, around 13pc of men and women will be worse off, mainly because the old yearly average method of calculating the pension rate is more favourable to those who do not qualify for the maximum weekly rate.

“Losses are, however, very low on average – less than 0.7pc of state pension income,” Dr Keane said.

“The yearly average method penalised those with time out of the workforce, so those with the same total number of PRSI contributions over their lifetime could end up receiving different state pension rates.”

Dr Keane said the new TCA will lead to more women qualifying for the maximum rate.