Q & A

Pensions

I am in my 80th year and am having great difficulty in getting the Department of Social, Community and Family Affairs to agree to provide me with a contributory old-age pension. Combining paid and credited PRSI payments, I meet the criteria for the minimum yearly average of 10 weekly payments - in fact my payments total a yearly average of 14 - but the Department says that credited payments are invalid for the purposes of reaching this threshold. This conflicts with advice you have previously given. Is the Department correct? If so, what is the point of having credited payments?

Ms A.N., Dublin

The rules governing social welfare pension payments are becoming so byzantine that even getting the correct advice from the Department itself is becoming more difficult. As you say, all previous attempts to elicit details of the qualifying conditions applicable for old-age contributory pensions drew no line between paid and credited PRSI contributions. However, the Department is correct and the position is correctly outlined in a guide it produces on social welfare services.

Essentially prior to introducing pro-rata old-age contributory pensions, the minimum level of contributions needed to qualify for even the most basic level of pension was a yearly average of 20 weekly social insurance contributions.

With the arrival of pro-rata pensions, this annual average fell to 10, but the rules governing the type of contributions also changed. Anyone applying for an old-age contributory pension on the basis of a yearly average of between 10 and 19 weekly contributions inclusive must have a minimum of 260 full-rate paid weekly employment contributions. This compares with the 156 full-rate employment contributions paid which is required for those claiming such a pension on the basis of an annual average of 20 or more weekly contributions.

The reasons put forward by the Department for the difference in qualifying standards are twofold. First, the qualifying standard for all people wishing to avail of an old-age contributory pension is rising. For those reaching pension age after April 6th, 2002, the minimum requirement will be 260 full-rate employment contributions paid. From April 6th, 2012, the threshold rises to 520 full-rate contributions, of which half (260) must be employment contributions.

Second, and more relevant to people in your position, is the argument that the Department wished to set the level of contributions required at a level high enough to ensure that qualifying applicants paid a reasonable amount of social insurance in the light of the benefit they would receive under the provisions of the old-age contributory pension.

The key word is "employment" contributions. This precludes credited payments at least for the purposes of reaching the threshold, although the rules say nothing about using such credited payments to enhance the pension to which you are entitled once you meet the minimum entry level.

The other qualifying rules for old-age contributory pension applicants still apply for pro-rata pensions. These are: [SBX] That you have commenced paying social insurance contributions at either the full or modified rate before reaching the age of 56; [SBX]

That you have a yearly average of at least 10 full rate contributions paid or credited from 1953 - or the time you began insurable employment if later - to the end of the tax year before you turn 66. To receive a maximum level of pension, you must have a yearly average of at least 48 weekly contributions.

Something which might help you, depending on when you started work, is a special provision for those who started work before 1953. While any social insurance paid prior to this date under the National Health Insurance Acts cannot be used in calculating your yearly average, it can be used to meet the requirement for 260 paid full-rate employment contributions.

There are also provisions for a special partial pension for people who were in insurable employment and then returned to such insurable employment after April 1st, 1974. I don't know if you are or were married. If so, and if you are now widowed, it might be more practicable to apply for a widow's pension where the qualification rules are not quite as severe and your partner's employment insurance record could be used.

Otherwise, I am sorry to say that both your previous employer and myself have probably falsely raised your hopes previously.

Forestry

I am interested in investing in the Fifth Irish Forestry Fund, but would like to know the answers to two questions. First, the yield is quoted at 12.5 per cent tax free per annum. I gather the return will be made in 30 or 35 years time. If I invest now, is this return guaranteed to be tax free in 30 or 35 years time? Second, the fund states that its shares are marketable. How is this so? For instance, could shares in earlier funds be traded now?

Mr J.B., Dublin

Forestry is one of those investments which is tempting an increasing number of people in this era of low interest rates and the reason is clearly the projected return on investment. With bank deposits so low and uncertainty in a long-running bull market and a bond market affected by uncertainty surrounding the euro, 12.5 per cent tax free a year looks good. Of course, as you point out, given the nature of forestry, such an investment is long term - up to 35 years - as it takes time for trees to mature into marketable products.

The position on tax is clear, if not exactly helpful. As of now, income from forestry is exempt from tax. Any change in this position would only come about by a provision of a minister for finance in a budget.

Given ever-changing political and economic imperatives, there is no way of guaranteeing what will happen, but even if a change in the tax treatment of forestry investments did take place, it would be practically unheard of for such a change to be made retrospective. What is far more common, when change is made, is for the minister of the time to decide that from a given date no new investments will be eligible for the previous favourable tax treatment.

On the subject of marketability of shares, the situation for inexperienced investors is somewhat clouded by the fact that the fund is, as it states, a public company but is not quoted on the stock exchange.

The shares are indeed marketable and, in essence, can be sold to anyone whom the vendor can find who wishes to buy into the fund. This could easily be other existing investors; it could be friends and neighbours of the investor whose interest emerges by word of mouth.

Another method of selling and buying such shares is through the fund administrators themselves. While a representative of the Fifth Irish Forestry Fund plc to whom I spoke made it crystal clear that it was not in any way a broker in the shares of the company, it does keep a list of people who have expressed an interest in buying into the fund. If an existing shareholder wants to sell their holding, the fund can put them in touch with a prospective buyer in what is a form of matching service.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, Fleet Street, Dublin 2, or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.