Making sense of the means test for my pension

Q&A:I am a separated person who will not qualify for the contributory pension you wrote about a couple of weeks ago. I will be 66 in February 2013 and cannot seem to get any clear answers as to means testing for a non-contributory pension. I have sold the family home to downsize and gather that some of the amount which is invested does not count as part of a means test. Is this correct?

What is the maximum amount that I can have in investments?

Where and how do I go about looking for this information

Ms A.F., Dublin

The non-contributory State pension is provided to people who do not have sufficient social insurance contributions (PRSI stamps) during their adult lives to qualify for a contributory pension.

At the heart of the non-contributory pension is the means test as the payment is paid according to financial means, or need.

There are three main elements to the means test. They are:

* cash income, such as earnings from employment;

* value of capital, which includes investments and savings, and;

* income from property personally used, such as renting out a room in your home.

On cash income, the starting point is that any cash income you receive is taken into account in the means test. This includes, as I said, earnings from a job, but also any maintenance you may be in receipt of from your separated partner or spouse and any money from a state pension in another country.

For means test purposes, the relevant income is what you expect to earn in the next year; if that’s not practicable, they generally work off your previous year’s earnings.

As you mention you are separated, I should probably go into some detail on assessment of maintenance payments.

As stated above maintenance payments are subject to assessment. However, you can deduct up to a maximum of €95.23 weekly for housing costs, such as rent or mortgage payments. You will be asked for evidence of these costs.

Thereafter, half the outstanding balance of your weekly maintenance payment is assessed as income; the other half is disregarded.

If that sounds complicated, things get even more convoluted when you start delving into the other income exceptions.

On the cash side, the main one is that the test does not take into consideration net weekly earnings from employment of up to €200. Net weekly earnings mean earnings after allowing for any PRSI payments as well as superannuation/PRSA contributions and union dues.

Further confusing matters is that this only comes into play if you are working for someone else. If you are self-employed, there is no allowance made for the first €200 of earnings.

In this case all you can disregard is expenses related to the self-employment.

Other income that is not taken into account, or more accurately, is disregarded in assessing means including any payment from the Department of Social Protection – i.e. any welfare payment.

Though unlikely to apply in your position, child benefit payments from any jurisdiction are also disregarded.

The other significant disregard is rent paid for letting out a room in your home, if you would otherwise be living alone and also any money paid into a Personal Retirement Savings Account.

That aside, there are myriad very particular disregards that will not apply to most people, such as for compensation payments from the Hep C tribunal or money received from charity on a Department list, including St Vincent de Paul.

The full details are available on the Department of Social Protection website at iti.ms/WQhKxEalthough the detail involved means they are not necessarily easy reading.

Turning to property, the property in which you live is not assessed. However any other property you own will be assessed on the basis of its capital value.

You refer to provision for an exemption on the sale of your former home when you downsized. There is an exemption of €190,000 on the difference between the sale price and the purchase price of the smaller property, which under certain circumstances, is not assessed. Thus, if you sold at, say, €500,000 and bought a place for €300,000, only €10,000 of your €200,000 gain on the transaction would be assessed for means.

Where this exemption applies, it is worth noting that any interest or investment gain on the €190,000 exempted is assessed as means.

You will note, however, that I referred to “certain circumstances”. My understanding is that the transaction must have taken place when you are over 66 apart from the case of people in receipt of stated particular welfare payments.

On first glance, this does not seem to cover you but I would advise you to check this personally with the Department of Social Protection.

Investments in shares, savings certificates, deposits or other financial investments is assessed, for weekly means as are certain pension funds. In these cases, as with property other than your family home, it is the current capital market value that applies.

On the basis of this market value of the accumulated property, savings and investments, no weekly income is deemed to derive from the first €20,000 of capital value. On assets between €20,000 and €30,000, you are deemed to get €1 per week in income per €1,000 of capital value. That figure rises to €2 per week per €1,000 on assets between €30,000 and €40,000, and to €4 per €1,000 on any assets in excess of €40,000.

Given that capital value is being assessed, any income or interest on such investment is not taken into account.

This column is a reader service and is not intended to replace professional advice. Please send your questions to QA, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to dcoyle@irishtimes.com. No personal correspondence will be entered into.