PRSI glitch puts State pension at risk

Leo Varadkar urged to seek amendment of ‘grossly unfair’ rules on ‘unearned’ income

People whose income comes from "unearned" sources such as rent and share dividends risk losing access to the State pension under a glitch in rules introduced by the government in 2014.

Minister for Finance Michael Noonan extended the reach of PRSI so that it would be levied also on unearned income. Under the measure, any "unearned" income above €3,174 was made subject to the 4 per cent charge.

At the time, the Minister said PAYE workers and the self-employed would gain no extra social insurance benefits despite paying the additional contribution. The additional PRSI was categorised as Class K, which grants no benefits.

However, for those people whose entire income came from such “unearned” sources, the PRSI was categorised as Class S, under which State pension benefits accrue.

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Benefits

But any move by people in this group to take a part-time, or even a holiday, PAYE job will see them stripped of any pension benefits already built up that year on their PRSI contributions.

Even one week’s PAYE income is enough to see all PRSI on other unearned income move to the Class K category under what those affected say are “grossly unfair” rules.

The level of State pension paid is based on the average number of PRSI stamps per year of working life. Someone helping out over the busy Christmas/new year period for four weeks would lose 100 pension contributions on their unearned income despite paying the PRSI on both that money and on her PAYE income.

That shortfall could cost them almost €1,000 a year in retirement on the State pension, with no hope of making up the shortfall.

Minister for Social Protection Leo Varadkar, whose department oversees the PRSI scheme, has been asked to seek amendment of the rules in next week's budget or the subsequent Social Welfare or Finance Bills.

Dominic Coyle

Dominic Coyle

Dominic Coyle is Deputy Business Editor of The Irish Times