From September 2012 to December 2024, the State Pension (Contributory) was calculated under two different methods known as the Total Contributions Approach (TCA) and the Yearly Average (YA) method. The elements which make up each calculation method are set out in legislation. Applications were assessed under all possible rate calculation methods with the most beneficial rate paid to the applicant.
The provision in section 108 of the Social Welfare Consolidation Act 2005 that counts contributions “ending at the end of the last complete contribution year before the date of his or her attaining pensionable age or deferred pensionable age” is a feature of the YA method. This provision is designed to ensure that a person who drawdowns their pension later in the year is not penalised. If these contributions were counted, it would also add another year onto the divisor and possibly lower the YA of the person.
Following on from the Pensions Commission's recommendations, a number of State pension reforms were enacted in the Social Welfare (Miscellaneous Provisions) Act 2023, which represented the biggest ever structural reform of the Irish State pension system.
Since January 2025, a ten-year phasing out of the YA method of calculating State Pension began. The ten-year transitional arrangements are to avoid a ‘cliff edge’ effect. From 2034 the YA method of calculation will no longer be used, and all State Pension (Contributory) calculations will be done using the TCA method. TCA is a fairer and more transparent method for calculating the contributory pension and will remove the existing anomalies that exist in the YA calculation method.
To qualify for a full rate pension under the TCA method, a person must have 2080 contributions (equivalent to 40 years) and unlike the YA method contributions are counted up to the date a person draws down their State Pension (Contributory), which as a result of the reforms introduced can be up to the age of 70 where a person choses to defer drawing down their State Pension (Contributory).
TCA is a more equitable approach as pension outcomes are more in line with the total number of contributions paid and credited. The principle of higher contributory entitlements for those who contribute more frequently into the social insurance fund is central to contributory pensions around the world.
I trust this clarifies the matter for the Deputy.
