382. Deputy Séamus McGrath asked the Minister for Social Protection to address the policy anomaly whereby someone with less working years can receive a higher rate of State pension due to the yearly average approach (details supplied). [54458/26]

A yearly average method of calculating contributory pension payment rates has been used since the introduction of the contributory old age pension (now State pension (contributory)) in 1961.  The yearly average is calculated by dividing the total number of contributions accumulated during a person’s lifetime by the number of years since they made their first reckonable contribution.

The main anomaly within the yearly average calculation 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 could in some cases be achieved from as little as 10 years of social insurance contributions.

Anomalies occur as their yearly average is calculated over a person’s entire ‘working life’ (i.e. their date of first social insurance paid to the end of the year before they draw down their pension).

A number of reports on the sustainability of the State pension system and pension eligibility endorsed the replacement of the yearly average system with a ‘Total Contributions Approach’ (TCA).  This makes the rate of pension directly proportionate to the number of social insurance contributions made by a person over their working life, with significant pension credits granted to people who have taken time out of the workplace to perform caring duties.

Following on from the National Pensions Framework (2010), an interim TCA was introduced in 2018 that allowed all those who reached State pension age from September 2012 to be assessed under both the existing yearly average method and the new TCA method, with the person receiving the better of the two rates.

In 2021, the Pensions Commission, tasked with determining the sustainability of the State pension system into the future, set out a wide range of recommendations to address future sustainability - including full transition to the TCA model and phasing out the yearly average.  Arising from this, a number of State pension reforms were enacted in the Social Welfare (Miscellaneous Provisions) Act 2023, representing the biggest ever structural reform of the Irish State pension system.

Among these reforms, the 2023 Act introduced a ten-year phased transition from the yearly average calculation of State pension (contributory) to TCA as the sole method of calculation.  The ten-year transitional arrangements are to avoid a ‘cliff edge’ effect.  The first year of phasing-out began in January 2025.  From 2034 the yearly average 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 method of calculating the contributory pension.  The year a person commenced paying social insurance contributions will no longer be a key determining factor for calculating pension entitlement.  Instead, the totality of social insurance contributions paid and credited will simply be added together.  This is an 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.

The person concerned applied for State Pension (contributory) on 16 September 2025 ahead of reaching pension age on 13 March 2026.  A decision letter issued to them on 18 September 2025 awarding pension of €259.80 (€268.80 2026 rate) per week based on their contribution record.  This was reviewed to include additional contributions for 2025.  A review outcome letter issued on 14 July 2026 advising of the award of an increased rate using the TCA method of calculation.  The person concerned has now been awarded 90.7% of the maximum rate of pension or €271.60 per week from their 66th birthday.  This rate will be further reviewed once their 2026 record has been finalised and a further review outcome letter will issue in due course.

I hope this clarifies the matter for the Deputy.