Confused by what pension my PRSI contributions will get me

Q&A: Dominic Coyle

We are going to be hearing a lot about the state pension over the next year or so

We are going to be hearing a lot about the state pension over the next year or so

 

I came to work in Ireland in September 1999, and currently have 19 full year contributions (19 x 52 = 988) at end of 2018. I will be retiring from my employment in August next year, aged 65, but will not be eligible to claim the state pension for a further two years.

I intend to maintain full PRSI contributions when I retire which will add three further full year contributions till December 2021, giving an approximate total of 1,144.

Looking at the Gov.ie website, the calculation to retrieve my yearly annual contributions is current contributions divided by 40; this would give a figure of approximately 29. According to the chart on the site, see below, this would give a reduced state pension of €211.30 per week.

However there is also a statement on the website which deals with PRSI qualification, it reads: “ You must have a yearly average of 48 paid and or credited social insurance (PRSI) contributions from 1979 or from your date of entry into insurable employment to the end of the last complete tax year before your 66th birthday.”

Am I correct in thinking that because I was not living in Ireland, I only came into insurable employment in September 1999, the calculation should then read 1,144 / 22 = 52 which would then be eligible for full state pension.

I have also heard that the system will again be changing requiring 40 years contributions (40 x 52 = 2080 ) would there be a pro rata system?

I am not sure where this would leave me with my 1,144 total.

I have tried unsuccessfully to contact by phone, the pensions division in Sligo, but am always returned to an automated message stating that they cannot give personal pension forecasts. It’s hard to believe, given the changes in qualification requirements in recent years and in the next few years, that there is not a dedicated telephone or email helpline for people affected by these changes.

Mr J.G., email

I expect I am going to be hearing a lot about the state pension over the next year or so – assuming the Minister doesn’t long-finger the issue. With an election looming in May, we are told, there is every chance that most substantive reforms of this sort will be ducked. A decision is already well past due.

That, in part, explains why there is no proper helpline facility available to guide people through the proposed new system. Until it is actually legislated for, there is no certainty whether it will happen at all, or if so, when.

And that’s really your biggest quandary: until you know what system will be in place to determine your Irish state pension, you have no way of determining with any accuracy what it is likely to be.

What you can say is that, purely on the basis of your Irish working life and on what we know about the proposed new total contributions approach, your retirement income from the State could be quite different.

As it stands now, you have more than the minimum of 10 years’ contributions – 520 weekly social insurance / PRSI payments.

In Ireland, the system averages your annual contributions from the year you started working until you retire. If you had a student job in Ireland, tough luck, you are going to have an extended working life and, probably, a lower annual average.

Similarly, if you took time out of the workforce to raise a family or care for parents or other relatives, you would lose out on the averaging.

In 1994, the State did make some effort to acknowledge the reality of broken PRSI service to raise or care for family. Under the Homemaker’s Scheme, any time spent out of the workforce to care for a child under the age of 12 or an ill or disabled person is ignored when working out the years of your working life over which your social insurance contributions are averaged – up to a maximum of 20 years.

Of course, those who did their raising of families before 1994 got no benefit.

For people like yourself, who worked in other jurisdictions, there is provision to use social insurance contributions in those countries to ensure they meet the criteria – depending on the country in which they work.

However, as you have noted, there is no obligation to tap into your other work life. In your case, you have the 10 years working here, with full social insurance cover – and that entitles you to a full state contributory pension of €248.30.

Ironically, if you did tap into contributions made in other countries to show the Irish welfare assessors a full 40-year social insurance record, the payment would be lower than if you simply averaged out your existing Irish contributions over a 40- or even 45-year working life. But that’s purely academic because you don’t need to be doing either.

Your issue will arise if the system changes before you qualify for payment of the pension. And to be fair, for all the dithering, there does appear to be some political consensus for a total contributions approach. As it happens, a major argument in favour of reform is precisely that people can come to work in the State late in life, work for 10 years and get a maximum state pension while someone else who started work in the their mid-teens and has 40 years work over a working life of 50 years or more loses out under averaging.

The proposal is that a full pension will be payable to people with a total of 40 years of contributions – including a maximum of 20 years for time taken out to raise/care for family.

So, someone like you, coming in with 22 years of contributions, will get a lower pro rata pension to reflect that, while you still have the minimum 10 years’ contributions to qualify, you have barely more than half the contributions paid in Ireland compared to others.

Of course, it will still be possible to get credit for social insurance contributions paid elsewhere – in the EU as well as European Economic Area states Iceland, Norway, Switzerland and Liechenstein. In addition, work in the United States, Canada, Australia, New Zealand, Japan, Korea and some Channel islands is covered by bilateral agreements.

But on the basis of how such contributions are calculated under the current arrangement, they might not do you a lot of good.

The bottom line is that it is expected to be fairer in that everyone qualifying for a payment will have made the same total contribution to social insurance systems. But that will be no comfort to you.

Of course, we still don’t know when that will happen. The Minister, Regina Doherty’s best guess is the third quarter of next year. But with nothing yet approved by Cabinet, never mind legislation introduced in the Oireachtas, and that election looming in the new year, a betting man would say it is still some way off.

The one group that has been able to avail of the new scheme is those people who have retired since September 2012 and lost out under changes to pension rules introduced at that time. They have already been reviewed to see if they would benefit under the new arrangement and,if so, are now in receipt of higher pensions.

The rest of us must just wait but, for you, I suspect the longer that wait goes on, the better.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.

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