NI credits for parents raising young children

Parents born on or after 1962 who temporarily leave their job to raise their children will have their national insurance contributions credited by the government for up to two years per child aged under six, Solidarity Minister Dolores Cristina told Parliament yesterday.

Speaking during the debate on pensions reform, Mrs Cristina said NI would be credited for up to four years in the case of children aged up to 10 having a serious disability.

Opposition spokesman Karl Chircop asked if this amendment also applied to single parents.

Mrs Cristina said the law would make no distinction between the status of the parents or whether it was the mother or the father who temporarily stopped working to raise the child since the principle was that two years of NI contributions would be credited per child. Parents could even opt to divide that period between them.

Dr Chircop said such measures were beneficial, but it was worth pointing out that in terms of this Bill, the government was raising the retirement age to 65, which meant that all workers would have to pay national insurance for an extra four years and the government was only giving back contributions for two years for parents who stopped working to care for their children.

The comments were made shortly after the opposition voted against the clause raising the retirement age to 65. Most of the debate on that clause was made in two sittings on Monday.

Mrs Cristina said the retirement age was being raised for reasons of pensions sustainability and also because people were staying healthy for longer. The number of persons wishing to continue working after age 61 was growing fast.

Dr Chircop insisted that the new system was socially unfair since the pensions of those with a big income would rise in a steeper manner than that of low income workers.

Education and Employment Minister Louis Galea said Labour needed to decide if it really agreed with the two-thirds pension, which it itself had introduced. In terms of that concept, it was inevitable that workers with a high salary would have a higher pension than those with a lower salary.

When the debate continued, Dr Chircop also observed that in terms of the Bill a worker who had to stop working because of injury at work could pay in a lump sum what remained for him to make up 2,080 national insurance contributions making him eligible for a two-thirds pension. This, he said was unfair as this worker would not have injured himself purposely.

Dr Galea pointed out that injured workers were eligible for injury benefit or a disablement pension for the period when they were unable to work. The government would credit one's NI for every week of injury.

Mrs Cristina presented an amendment introducing the concept of a guaranteed national minimum pension for those born after January 1, 1962.

Explaining the difference between the national minimum pension and the guaranteed national minimum pension, Dr Galea said that while the national minimum pension was two thirds the minimum wage, the guaranteed national minimum pension was linked to the median national income. This, he explained, was important because income meant whatever a worker made and not just the wage.

While the national minimum pension in 2005 was Lm46.30 weekly, the guaranteed national minimum pension would have been Lm56.71 weekly.

At this stage, the guaranteed national minimum pension would apply only for those born after January 1, 1962 but this could be improved upon when the economy was in a better state. The guaranteed national minimum pension would be reviewed upwards every year.

Dr Chircop criticised the fact that the guaranteed national minimum pension would not be introduced gradually but after a cut-off date meaning people born before January 1, 1962 would have a lower minimum pension than those born later.

Dr Galea said the system could in future be extended to other pensioners according to economic conditions.

Moving to another clause, Mrs Cristina said that in terms of the Bill, pensioners born before December 31, 1961 would continue to be able to receive their pension while working as long as their income did not reach the minimum wage.

For those born after January 1, 1962 those who opted to retire before turning 65 would not be able to work if they wanted to receive their pension in full.

Speaking about the accumulation period for entitlement to a two-thirds pension, Mrs Cristina said workers at present needed to make national insurance contributions for 30 years to be entitled to a two-thirds pension.

In terms of this bill, those born before December 31, 1951 would remain under the present system. Those born between 1952 and 1961 would have to make contributions for 35 years while those born on or after January 1, 1962 would need to make contributions for 40 years.

Dr Chircop said these changes, again, would benefit the high income earners. On the basis of calculations he had made of workers who would be 45 in January and would retire in 20 years' time, it was clear that a worker earning Lm75 per week would see his NI bill rise to Lm16,109 from the current Lm13,780. A worker earning Lm93 per week would see his NI bill rise to Lm20,140 from the current Lm17,436 while a worker earning Lm142 per week would see this bill rise to Lm30,000 from the current Lm23,000.

But, because of the way annual pensions would increase for high income earners, they would be able to recover their increased outlay on NI contributions within four years whereas lower income workers would not be able to do this. The small and middle income workers would see their pension rise by a mere Lm35 per year while the high income workers would see their pension rise by Lm1,500 per year as capping was lifted.

This trend applied to all age groups.

Furthermore, since workers would retire at 65, by the time they turned 75 their total pension receipts would be lower than if they were to retire at 61, but the decline would be considerably less for high income pensioners than for those having a low and middle income. This meant that this reform was socially unfair, Dr Chircop said.

Dr Galea said the Labour MP was basing his calculations on the wrong premise aimed only at feeding the Labour propaganda machine. Still, even using Dr Chircop's formulae, the government's figures were different.

Interestingly, the Labour Party never came up with any alternatives to what the government was proposing.

There could be no pension reform without raising the retirement age and hence, the period of NI contributions. Was Dr Chircop advocating no change in the current pension regime? Should that be the case, how would pensions be financed in the future?

It was also a mistake to equate NI contributions only for the funding of pensions when they also funded various other social benefits and allowances.

As had already been explained, by definition the two-thirds pension meant that high income workers would have a higher pension than those with a lower income.

It was true that workers would pay NI contributions for a longer period but life expectancy was rising. It was expected to be considerably higher in 20 years' time, when the measures provided in this Bill would come fully into force. Pensioners would receive a pension for more years than at present and the national pensionable income was being raised so that pensions would better mirror workers' income. Was Dr Chircop returning to the old socialist ideology of having the same pension for everyone, independently of what the salary would have been?

Furthermore, the majority of workers already paid NI contributions when they retired at age 61, Dr Galea said.