Once a person has met the minimum requirement of 520 paid contributions, the rate of payment at which a person is paid the State Pension (Contributory) is currently calculated using two methods; the Yearly Average (YA) method that has been in place since the introduction of the contributory pension in 1961 and the Total Contributions Approach (TCA) that was introduced in 2018. The most beneficial payment is then awarded to the person.
To qualify for a full rate pension under the YA method, a person must have an average of 48 contributions per year since they first entered insurable employment.
To qualify for a full rate pension under the TCA method, a person must have 2080 contributions (equivalent to 40 years). These contributions can include up to 20 years HomeCaring periods or PRSI credits.
Following on from the Pensions Commission's recommendations, a number of State pension reforms were enacted in the Social Welfare (Miscellaneous Provisions) Act 2023 on the 14th December 2023, which represent the biggest ever structural reform of the Irish State pension system.
One of the reforms in the 2023 Act was the ten-year phased transition from the YA method of calculation of State Pension (Contributory) to TCA as the sole method of calculation.
TCA resolves many of the anomalies arising from the YA calculation model. The main anomaly within the YA calculation method is that it is possible for people to start paying social insurance later in their working life and yet qualify for a pension at maximum rate. Entitlement to a full pension can in some cases be achieved from as little as ten years of social insurance contributions. Another anomaly arises where a person has a gap in their social insurance contribution record, possibly from periods spent caring for family or travel, and qualifies for a lower pension entitlement than a person with the same number of social insurance contributions. This occurs as their Yearly Average is calculated over the person’s entire ‘working life’.
TCA is a fairer and more transparent method of calculating the contributory pension as it more closely reflects the social insurance contributions made by a person during their working life.
The ten-year transitional arrangements are to avoid a ‘cliff edge’ effect. The first year of phasing-out will begin in January 2025. From 2034 the YA method of calculation will no longer be used, and all State Pension (Contributory) calculations will use the TCA method.
Finally, the rate of payment of State Pension (Contributory) is based on a person's contribution record, including paid and credited contributions, and is not based on levels of income in employment or self-employment.
I trust this clarifies the matter for the Deputy.
