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Explained: Why women are losing out on their pension payments

Changes to the way the State pension payment is calculated were introduced in 2012.

The new rules hit women hard. They are typically losing around €35 in payments.

And they will not get the full €5 rise in the State pension announced in this week’s Budget.

Personal Finance editor Charlie Weston looks at all your questions about the changes and what they mean for women.
Why are women annoyed about State pension rules?

A: Many people, especially women, who have been reaching retirement age in the last few years are finding they are getting smaller pensions than they had been banking on. People who worked and made pay related social insurance (PRSI) contributions, or stamps as it used to be called, feel cheated. In effect, the goalposts were moved during the game.

Q: How many women are affected?
A: Some 35,000 pensioners are suffering from these pension cuts. But 23,000 of these are women, according to advocacy group Age Action. Those who retired before 2012 are not impacted.

What was the change?

A: The State pension is calculated by adding up the total number of PRSI contributions you make. This figure is then divided by the number of years between when you started work and when you are entitled to the pension. But many older women can find themselves punished by this system for taking time out of the workforce to raise a family. This is mainly because the weekly pension rate is calculated on the average number of contributions made over a working life.
Give me some more detail on that

A: Before 2012 there were four payment bands used to calculate how much of a State pension you get. Those with 48-plus yearly averaged contributions received the top rate of the pension payment. Those with between 20 and 47 contributions received 98pc, etc. In Budget 2011, then Social Protection Minister Joan Burton increased the number of bands to six. Crucially, band two was divided in three. And those in the lowest band, with 20 to 29 averaged contributions, got just 85pc of the maximum payment. Before this it would have been 98pc. The payments for what used to be bands three and four were reduced to 65pc and 40pc respectively.

Read more: Donohoe admits pension hit to women is ‘bonkers’
Which groups lost out?

A: The two groups of pensioners this change affects the most are those with between 20 and 29 yearly averaged contributions and those with between 10 and 14 such contributions. For those in the 20 to 29 contributions group, the changes mean a weekly difference of €35 per week.

Give me an example?

A: Say a person worked for a few months in 1968. This person then left the workforce to raise a family – during which time she would not have made contributions – before going back to work in 2000. In this example, the average number of pension contributions would be divided by 48 (the number of years between 1968 and 2016). In effect, the weekly pension rate would be much higher if the individual had not worked in the summer 1968, according to detailed research by Age Action.

But women were not supposed to lose out for raising a family?

A: The Homemakers’ Scheme partly addresses gaps in employment due to caring responsibilities. The scheme provides a disregard of up to a maximum of 20 years for those who take time away from the workforce, to care full-time for children or a person with a disability. However, it only applies to periods of caring from 1994.

Tell me about the averaging rule?

A: The situation is made worse by the “averaging rule” used by the Department of Social Protection to calculate the number of contributions made by a worker. This is where the number of PRSI contributions a worker has made is divided by the number of years between her first day of work and her retirement. This means that someone who worked for a few months in the 60s and then went back to work in 2000 gets a far smaller pension than someone of the same age who just started work in 2000.

This sounds very unfair to me

A: Yes, it is an unfair system. People are getting very small pensions because of a decision they made to go to work in the 60s and 70s. They are being punished for working.
Is there any hope of going back to the old rules?

A: Finance Minister Paschal Donohoe says it could be 2021 before the situation is rectified.

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