The Government last night admitted the Department of Health was told two years ago that the practice of using pensions to pay for nursing home care in State institutions was unsafe legally.
The development led the Fine Gael leader, Mr Enda Kenny, to claim immediately that questions about the legality of the practice had been "covered up" in the Department of Health. He called on the Tánaiste and Minister for Health, Ms Harney, to begin an investigation into the affair.
The admission that the Department knew of the problem in late 2002 marks a change of stance for the Government, which said on Wednesday that the problem emerged only on November 5th, when the Attorney General advised that new legislation was required to regularise the system.
Mr Kenny said the confirmation that the Department knew of the legal difficulty in 2002 meant that money was "illegally" taken from nursing home residents who surrendered their pension books to pay for their accommodation in State institutions.
The Government was now obliged to refund some €100 million in pensions forgone, said Mr Kenny, who had indicated several times on RTÉ that at least one health board had informed the Department of the problem in early 2002.
The legal difficulty centres on an anomaly outstanding since a 2001 Act was passed to give the medical card to all pensioners over the age of 70. Card-holders are entitled to free medical care, although the pensions paid to residents of public nursing homes go directly to the institutions.
Although Ms Harney has insisted there would be no refund of money that was taken in "good faith", she said on Wednesday that the Government would have to deal with any claims for refunds for the period from November 5th.
However, Ms Harney's spokesman revealed last night that the legal problem was "first indicated to the Department in late 2002". He declined to elaborate when asked why the information had emerged only last night.
He also declined to comment when asked whether refunds were now likely, stating that the matter was the subject of legal advice. The Government has never commented on the extent of its potential liability following the emergence of the anomaly.
The development last night came hours after Ms Harney told the Dáil that health boards had been ordered to immediately stop taking pension contributions. This followed new legal advice on the matter from the Attorney General on Wednesday evening, she said.
Mr Kenny said last night that he had asked Ms Harney and the Taoiseach, Mr Ahern, on four occasions to confirm the legality of the charges.
"On none of the occasions did they take the opportunity to outline the extent of knowledge in the Department regarding this matter," he said.