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Demographicchallengeandlongevityinsurancebenefits
4.1.NominalValueoftheAllowanceandRelativetothePension
13
Forthefirsttwoyears,asFigure1shows,thevalueoftheage80allowance
wasthesame(60.64)forboththecontributory(socialinsurance)andnon-
contributorypension(socialassistance).In1974theallowancewasslightlyhigher
forthecontributorypension,butfrom1975to1978itwashigherforthenon-
contributorypension.From1978to1984theallowancewashigherforthecontrib-
utorypension.Thereaftertheallowancehasbeenthesamenominalvalueforboth
pensions.Therewasasignificantincreaseinthenominalvalueoftheallowancein
2006whenitwasincreasedto610.Thenominalvalueoftheallowancehasre-
mainedat610since2006.Thus,therealvaluehasdecreasedsince2006.
Whentheage80allowancewasintroducedin1972itamountedtonearly
10percentofthemaximumnon-contributorypensionandtoaround8percentof
thecontributorypension.Inthefirstfewyearsafteritsintroductionitdeclinedby
about2percentagepointstoaround6percentforthecontributorypension
andaround8percentforthenon-contributorypension.Between1975and1996
theageallowancestabilisedatjustunder8percentforthenon-contributorypen-
sionandjustover6percentforthecontributorypension.Inthefollowingtenyears
upto2005theallowancewasallowedtodeclineinpercentagetermstoaround
5percentforbothpensionsorabouthalfofwhatithadbeenupto1995.In2006
therewasanincreaseofabout11/2percentagepointsinthevalueoftheallowance
relativetobothpensionsandsincethentheallowancehasstabilisedataround4.5
percentforboththecontributoryandnon-contributorypension.
AlthoughsuccessivegovernmentsinIrelandhaveneverlegislatedforformal
indexationofsocialwelfarepensionsinlinewithincreasesinpricesorearnings,
publiclyprovidedpensionswereimplicitlyindexedinlinewithearningsupto
around1980.After1980pensionswereincreasedsomewhatfasterthanearnings
until1998whenthePensionsBoard[1998]recommendedthatsocialwelfarepen-
sionsshouldbemaintainedat34percentofaverageearnings.Implementationof
thisrecommendationnecessitatedasignificantincreaseinsocialwelfarepensions
relativetoearningsasthepension-earningsratioin1998wasjustoveraquarter.In
thefollowingtenyearsuptothebeginningoftheeconomicandfinancialcrisisin
2008socialwelfarepensionsincreasedmuchfasterthanearnings.Since2008the
levelofsocialwelfarepensionshavebeenfrozenaspartoffiscalconsolidationin
responsetothecrisisandthenaspartoftheEU/IMFProgrammeofFinancial
SupportforIrelandagreedwiththeGovernmentofIrelandin2010[Departmentof
Finance2010].