There is a lot of useful information in your articles about making UK voluntary contributions to qualify for or improve a UK state pension, but one point I have not seen mentioned concerns people who do not currently qualify for an Irish state contributory pension and who are in danger of missing the minimum 520 contributions needed to qualify for a state pension (contributory) by the time they reach 66 (or potentially 70 under the new rules).
Also, for those who will not meet the minimum requirements for an Irish state pension under any circumstances, I suspect the receipt of income from a UK pension will be taken into account when assessing their entitlement to an Irish non-contributory pension. In such cases the purchase of UK voluntary credits may have little or no net value.
Mr A.B.
As you say, there was a quite intense focus on buying back entitlement to a UK pension on these pages recently in advance of a deadline earlier this month. But, for most people, a bigger issue may be how they can make up any shortfall in the Irish state pension.
Getting a fix on the issue is not helped by the Irish regime going through a transition at the moment. Once that is complete, the system will be quite straightforward: you will need 40 years of PRSI contributions to secure a full pension.
If you are looking at your PRSI record, which is available from the Department of Social Protection, that is 2,080 weekly “stamps”.
Anything less than that, you will be in line for a “pro rata” pension. The percentage of the full pension rate you get will be determined by how far short of the 2,080 target you are.
So, if you have 1,600 paid and credited contributions over your working life, you would have 76.9 per cent of the 2,080 contributions needed for a full pension, and so you would get that fraction of the full state pension.
With the pension worth up to €289.30 in today’s terms, that person would receive a weekly payment of €222.47, which is 76.9 per cent of €289.30.
The old system, yearly averaging, basically required you to divide your total number of weekly PRSI payments by the number of years you worked. If the outcome was 48 or higher, you get the full pension. Anything below that and the pension drops in a series of bands.
The downside was if you started working early then you could work well over 40 years and still not have a full pension.
In either case, you must have a minimum of 10 years of weekly contributions – 520 – to be eligible.
In the decade-long transition that runs up to 2034, they will compare the total contributions outcome and a blended approach of the two to see which gives you the better outcome and that is what you receive.
But what if you are shy of the magic 2,080, but you did work elsewhere in Europe or beyond? It depends on where you worked.
If it was in a country within the European Union or the European Economic Area, then social insurance from those employments can be added to your Irish record to help you secure a pension here or boost it.
If it was within certain other countries – notably the UK, the US, Canada, Australia, New Zealand, Japan or South Korea – Ireland operates a bilateral agreement that allows social insurance payments there to help boost your Irish record using a specific pro-rata formula.
First, they calculate a “notional pension”, which is what your pension would be if all the Irish and non-Irish contributions were treated the same. So you simply add all your social insurance weekly contributions in Ireland and, say, the UK. You then divide this number by the number of years you have worked to give you a yearly average.
If that gives you 48 or over, your “notional pension” is the €289.30 above. Below that, the rate drops in bands.
That is only the first step. You then use the following formula – (A x B) / C – where A is the notional pension rate, B is the number of your reckonable Irish contributions and C the total number of contributions between Ireland and, in this instance, the UK.
So, if you have, say, 1,200 Irish PRSI stamps and 416 stamps from eight years worked in the UK over a 39-year career, you get your notional pension rate by adding 1,200 and 416 and dividing by 39. That gives you 41.4, which is rounded up to 42. That’s worth €283.70.
You then take this notional rate (283.70 and multiply it by your 1,200 Irish contributions before dividing that sum by your 1,616 stamps across both countries. So, 283.70 x 1,200 = 340,440 / 1,616 = €210.66 which is rounded up to €210.70.
As it happens, in this case, relying only on your 1,200 Irish stamps over that 39 year working life, the yearly average would have been just over 30 and the pension payment would have been €260.10. As you are better off under this calculation, that is the pension, you’ll receive.
The fewer Irish stamps you have, the more likely the pro-rata formula will help you.
On your second point, you are quite correct. People who will be relying on the non-contributory state pension – people who do not have enough PRSI stamps for a contributory payments – will be subject to a means test. And that means test will, in general, include all your cash income.
However, there are exceptions. One of these is any payment from the Department of Social Protection. And, related to that, there is an exemption for social welfare payments from other EU member states and, critically, from the UK that are deemed equivalent to an Irish social welfare payment.
That would seem to indicate that your UK state pension income would not be taken into account. However, the EU regulation on which this exemption is based – Regulation 883 of 2004 – apparently also rules out overlapping payments.
My understanding is that, and I am not clear what that might mean in the circumstances you outline.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice
