Minister Launches Consultation on Contributory State Pension

Discussion in 'The Government's Pension Consultations' started by Sarenco, May 29, 2018.

  1. Sarenco

    Sarenco Frequent Poster

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    Last edited by a moderator: Aug 28, 2018
    The Minister for Employment Affairs and Social Protection launched a public consultation on the State Pension (Contributory) yesterday, 28 May 2018.

    The closing date for receipt of submissions to the consultation is 3rd September 2018.

    The consultation will apparently help to inform the design of a new Total Contributions Approach (TCA) to the State Pension (Contributory) from 2020. A TCA option is also being made available later this year, as an interim measure, for people who reached State Pension age after 1st September 2012.

    At a seminar to mark the launch of the consultation, Minister Doherty said:

    “Today I am launching a consultation to inform the design of the Total Contributions Approach to pensions that will be implemented for all new applicants for State Pensions (Contributory) from 2020 onwards. The approach, first announced in the 2010 National Pensions Framework, and furthered in the Government’s “Roadmap For Pension Reform 2018-2023” plan published earlier this year, requires consideration from both a policy and budgetary perspective and my Department is progressing this important work."

    “The TCA reform is part of a broader process to improve pension outcomes as set out in the Roadmap for Pensions Reform, 2018-2023. Under the Roadmap, we guarantee the State Pension will remain the bedrock of the Irish pension system.”
     
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  2. Brendan Burgess

    Brendan Burgess Founder

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    Last edited: Aug 28, 2018
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  3. Brendan Burgess

    Brendan Burgess Founder

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    Is anyone planning to make a submission on this?

    Brendan
     
  4. Mary55555

    Mary55555 Frequent Poster

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    Hi , I was planning to do that.. but when I looked at the form it’s not very user friendly or very clear to my mind.... how did you find it???
     
  5. Sarenco

    Sarenco Frequent Poster

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    Quick reminder that the closing date for receipt of submissions on this consultation exercise is next Monday, 3 September 2018.
     
  6. Brendan Burgess

    Brendan Burgess Founder

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    OK, I have struggled through these documents trying to find out what they are asking. This is what I think the consultation is about.
    They have designed the system. They just want us to fill in a Survey Questionnaire on the details such as "Should you require 40 contributions rather than 30 contributions to get 100% contributory pension?" Here is the meat of the proposal as far as I can make out.



    In addressing the pension anomaly for people who reached state pension age since September 2012 the Government directed the implementation of an interim model based on four key elements.

    1. Pensions paid to any individual are to be based on their total contributions. A full pension will be paid to those with forty years contributions with proportionate reductions in payment rates for those with fewer contributions.

    2. People who leave the workforce to take up caring duties will receive “credited” contributions which will count towards their pension entitlement subject to a maximum of 20 years credited contributions.

    3. Up to ten years of “ordinary credits” (e.g paid during periods of unemployment) will be reckonable for pension purposes.

    4. A minimum of ten years contributions will be required to qualify for a State pension.

    Prior to finalising the shape of a general TCA system, the Government still has a number of decisions to make regarding its design and balance, and the purpose of this consultation is to inform those decisions.

    There are a number of different policy levers within a TCA framework, which affect different groups to varying extents, and these were approached differently in the 2010 National Pensions Framework (NPF) proposal, and in the TCA2012 proposal which will apply to those affected by the 2012 rateband changes. Primary among these are;


    • The number of contributions required for a full pension (e.g. 30 years as proposed in the NPF, or 40 in the TCA2012 proposal)

    • The amount of ordinary credited contributions that could be used (10 years in NPF and TCA2012)

    • The provisions for those who were home-carers, notably;

    • effective date (e.g. 1994 as in NPF, or backdated indefinitely as in TCA2012 proposal),
    • number of years (e.g. 10 as in NPF, or 20 as in TCA2012 proposal),
    • age of children (e.g. up to age 12 in NPF & TCA2012 proposal)

    • The number of paid contributions required to qualify for a payment (10 years under NPF and TCA2012)

    • Transitional measures, to take account of greater difficulty in working up a 40 year record in the 1970s/1980s than in the 1990s and later.



    Three concepts are important in the design of any pension system.

    The first is Adequacy, or more simply, that the rate of the payment be maintained at a level that is considered enough for pensioners to live on, with a reasonable standard of living. This adequacy should not be dependent upon someone being male or female.

    The second is Equity, or more simply, that those who pay contributions into the system receive an appropriate reward for that contribution.

    The third is Sustainability, or more simply, the principle that the demographic changes will not push up costs to a level where they will not be sustained in the longer term. People who currently fund existing pensions have a right to know they will have similar supports when they reach pension age.
     
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  7. TheBigShort

    TheBigShort Frequent Poster

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    After a brief look through the examples at the back, it would appear that in most scenarios most people would be better off under TCA.
    Only a few exceptions, early retirers, returning (long-term) immigrants would be at a disadvantage.
    Im open to correction on this but I fail to see how the TCA system will be anymore sustainable than the current one?
    If, what I understand is the issue with the pension 'time-bomb', is that we are all going to have to work beyond 66 or 67 or 68 etc.
     
  8. Brendan Burgess

    Brendan Burgess Founder

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    You got it in one.

    The big problem is that the current system is not sustainable as pension payments are not linked to contributions and as the non-contributory pension is too high.

    This does not deal with it at all.

    But the current government and next government will be long gone before the chickens come home to roost.

    Brendan
     
  9. Brendan Burgess

    Brendan Burgess Founder

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    I am not sure that there is much point in responding to this.

    The whole system is completely unsustainable and inequitable and tinkering around with it won't fix that. In fact, these proposals will make it more unsustainable.

    The only solution is
    1) Switch PRSI and USC to an account based system. You get out what you put in.
    2) Integrate it with the new autoenrollment process
    3) Hike the rates on the lower paid so that they put in enough to fund themselves.

    Brendan
     
  10. RETIRED2017

    RETIRED2017 Frequent Poster

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    Last edited: Sep 2, 2018
    I agree the whole system is unsustainable because up to now we have being squandering the employers contribution and not collecting it from all the people who are in earning an income which gives rise to a contriburity pension should pay the same contribution as employers do at present ,
    this needs to be collected and ring fenced ,
    The like of Dunnes Stores the HSE and all employers who at present operate by employing lots of people on 18 hr/20 hr contracts need to be surcharged the same as if they were in full time employment, These part time employees finish up on the same rate of pension as full time employees so the system needs to reflect this fact,
     
    Last edited: Sep 2, 2018
  11. Brendan Burgess

    Brendan Burgess Founder

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    Hi Retired

    An interesting point. If I understand it correctly, there is no distinction between part-time and full time workers in the PRSI scheme.

    However, employers pay a reduced rate of 8.6% on salaries below €20,000 a year. Over that, and they pay 10.85%

    I am not sure of the rationale for this lower rate. So it would seem equitable to get rid of it.

    Having said that, it would not raise much money for the SIF. It would cost an employer an extra €450 for someone on a salary of €20,000.

    Don't forget that a self-employed person declaring a salary of €20,000 pays a total of €800 a year into the SIF. A PAYE employee would pay or have paid on his behalf, a total of 14.85% or €3,000.

    Brendan

    upload_2018-9-3_12-51-58.png
     
  12. RETIRED2017

    RETIRED2017 Frequent Poster

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    Last edited: Sep 4, 2018
    The state Contributory pension is supposed to work out at around one third of the average industrial wage

    The contributory pension at present for a single person is around 243.30 per week or 12651 euro per year multiplying it by three you come out around 37952 euro per year (I am not allowing for holidays in this example so lets keep the Greek out of it for now)(single person )If you multiply 39 hrs per week by 52 you will get 2028 hrs per year or 18.71 euro per hr
    To pay 37952 in wages well cost the employer 42032 euro or 20.72 per hr
    If you break it down
    Paye 5121 euro per year
    Prsi 1518 euro per year for employee and 4080 for employer
    Usc 1188 euro per year
    Net Pay 30125 euro per year
    Employee gets 14.85 per hr and will be entitled to the contributory pension ,
    The state takes a total of 11907 euros payroll for the person working 39 hrs or it takes in 5.87 euro for every hr they worked at an hourly rate of 18.71 euro employee paid around 3.86 and employer paid around 2 euro,


    If you take an employer who employs people working 18 hr per week on the same hourly rate of 18.71 euro they will work 936 hrs a year and earn 17516 euro per year

    again if you break it down
    Paye 205 euro per year
    prsi 0 per year for employee and 1489 for the employer
    Usc 198 per year
    net pay 17124 euro per year
    Employee gets 18.26 per hr
    the state takes a total of 1892 euro payroll for the person employed 18 hrs per week or it takes in 2 euro for every hour they worker at an hourly rate of 18.71 euro employee paid 43 cents and employer paid around 1.57 euro,
    I think the above figures are correct if not correct me please,
     
    Last edited: Sep 4, 2018
  13. Brendan Burgess

    Brendan Burgess Founder

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    I understand your calculations, but what is your point?

    Someone on home caring duties or who is unemployed gets credits and so they get the full pension as well.

    A self-employed person declaring €20,000 a year pays €800 into the fund and gets the full pension.

    Dunnes Stores pays €1,600 PRSI on someone earning €20,000.

    I have posted
    My final submission to consultation on Contributory Pension

    I have highlighted this point

    The pension which a person receives in retirement must be linked to the amount of PRSI contributed by them and on their behalf and not to the number of contributions made or credited.

    So an employee of Dunnes earning €10,000 a year would not get the same pension as a PAYE employee earning €50,000 a year.

    Brendan
     
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  14. RETIRED2017

    RETIRED2017 Frequent Poster

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    The point is if you look up the department web site you will see the aim is to have a state contributory pension of one third of the average industrial wage with ether 30 or 40 years service ,
    I cannot show this link but I am sure some poster will
    You or I may or may not like it but this is there stated aim and we need to start looking at how we are going to foward fund this pension which is paid to the self employed and employees of companies,

    Seeing it is triggered by being self employed or being employed by a company we need to have a discussion about how important to ring fence the employers/self employed contribution so it is there to pay out to the self employed or employees when they retire ,
    This will then trigger a discussion on the need for the government to also contribution they same amount as employers/self employed for all of the others people the allow into the system ,
     
  15. Brendan Burgess

    Brendan Burgess Founder

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    But what has that got to do with Dunnes or the HSE?
     
  16. RETIRED2017

    RETIRED2017 Frequent Poster

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    I will get back to you and explain when I get a chance