THE BACKGROUND

÷ HOW DOES ‘AVERAGING’ WORK? The pensions overhaul is a response to measures introduced in September 2012 which led to 42,278 people getting their contributory State pension cut. It is also linked to the ‘averaging’ system that has applied to the contributory State pension since 1961.

Under the averaging system, one of the things which determines whether or not you qualify for the full State pension is your yearly average of social insurance contributions. This yearly average is calculated by dividing the number of social insurance contributions or credits (also known as credited contributions) you have by the total number of years you have been making social insurance contributions or credits. This total number of years is calculated from the date you first started paying contributions — to your last full year of contributions. The higher your yearly average, the better your chance of getting the full State pension. The lower your yearly average, the smaller the pension you get.

The averaging system meant that many of those who started work at a very young age — and who later went to college or travelled abroad for a number of years before returning to work — were at a disadvantage. So too were many stay-at-home parents if they took time out of the workforce to look after children in the home before April 1994. These years out of the workforce led to a gap in their social insurance record. A long gap reduced the average amount of social insurance contributions paid a year over their lifetime, which in turn slashed the State pension they were entitled to.

This situation was exacerbated in September 2012 when the rules around the State pension were tinkered with. ÷ WHAT WAS CHANGED IN 2012? Before September 2012, there were four rate bands determining the level of State pension people were entitled to — and each rate band correlated to a yearly average score.

In September 2012, two new rate bands were introduced (bringing the total number of bands to six) and as a result of this, many people saw their pension cut by up to €35.50 a week. One of the intentions behind the 2012 changes was to make the State pension system fairer —especially for those who had paid PRSI for longer. However, many people were hit with an unfair pension cut following the 2012 changes — and this was largely due to the anomaly around how the yearly average was calculated. At particular disadvantage were the women who were forced out of the workforce due to the marriage bar, which was in place until 1973. It is this anomaly which Doherty has sought to fix. ÷ WHAT ARE CREDITED CONTRIBUTIONS? Credited contributions are similar to the social insurance contributions you pay while working. You may qualify for credits if you become unemployed, sick or retire early — or if you are looking after young children in the home. Credits are usually awarded at the same rate as your last social insurance contribution. These credits count towards — and therefore usually protect your entitlement to a State pension in the future. Credited contributions are not available to a person who makes a choice to take time out of the workforce to go abroad or to study.