I was reading online that you can only use 520 credits towards new State pension assessment after 2033, which is the year I am due to receive it.
Can someone over that amount now and getting social welfare credits at the moment, buy voluntary PRSI contributions while also getting PRSI credits at the same time? It looks to me like the credits will be discounted once they go over the 520 cap.
Also, will paying for these contributions cancel out voluntary national insurance contributions being paid to the UK?
Ms A.C.
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Concern over just how much you will have in retirement is perfectly normal, especially among people who, for one reason or another, have been out of the workforce for an extended time during their career.
The fact that the method of calculating entitlement to the Irish State pension is changing only makes things more confusing. And when it comes to pensions, confusion is not good. What we all want is clarity and certainty.
You already have more than 520 credited PRSI contributions and, from what you say, it appears that you may not be making any more full PRSI contributions through payroll for the next eight years or so until you reach state retirement age at some point in 2033.
So, should you start to pay voluntary PRSI contributions? And are you even eligible to do so?
Let’s step back a bit. The State pension is moving towards what is called a total contributions approach. This is fairly straightforward, you need 10 years of full rate contributions (520 weekly PRSI “Stamps”) to qualify for any contributory state pension. These full rater contributions will usually come from working though you can also earn them as a long-term carer.
[ Don’t leave PRSI benefits on the table - they can save you thousands of euroOpens in new window ]
Fail to make that 520 and you are restricted to the non-contributory pension which is means tested. But once you pass that 520 stamp threshold, the rules are straightforward: you need 40 years of PRSI contributions (2,080 weekly payments) for a full pension. For anything less, you will get a pro-rata pension.
Say you have 2,000 PRSI stamps, so you’re about a year and a half shy of the full quota. That is 96 per cent of the full 2,080 so you will receive 96 per cent of the full pension rate. From January, the full rate will be €299.30 a week and the person in this example will get €287.30.
Once you get past the 520 full-rate threshold, you can use a mixture of paid, credited PRSI contributions, within limits.
As you correctly note, the limit on ordinary credited contributions is 520, or a quarter of the full complement. Now you can actually use 20 years, or 1,080, if you had taken time out of the workforce to care for a child or a dependent adult, such as a parent or a disabled child. But that is the max. You cannot then add the other 520 credited contributions.
As we mentioned earlier, the Irish State pension system is moving towards this total contributions approach but it is currently going through a transition phase which can wreck your head even more. It started this year and runs to 2034.
During this decade, the authorities assess your entitlement to a pension under the new system and under a blend of the new and the old “yearly averaging” system, which I am not going to go into here, largely because it is becoming history.
[ Will paying voluntary UK national insurance cancel out my PRSI payments?Opens in new window ]
If you were to retire next year, this “blended model” would assess 80 per cent of your entitlement under the old system and 20 per cent under the new one. By the time you retire in 2033, it will be 10 per cent of what you would get under the old system and 90 per cent of your entitlement under total contributions.
And if you do better being assessed 100 per cent under total contributions, that is the one that will apply to you.
So it is not quite true to say you will have no choice in how you are assessed in 2033; you do but certainly anyone activating their State pension entitlement in 2034 or later will not.
It is important because once you are assessed, that governs your pension in future years. So if the blended system benefits you more in 2033, that is the percentage of the full pension you will get going forward.
If you look like you’re going to fall short and you have maxed out your non-homecaring credits at 520, it certainly makes sense to consider voluntary contributions.
[ What are the rules for PRSI now that I am self-employed?Opens in new window ]
To qualify you need to meet two criteria.
Firstly, you must have at least 520 weeks of paid PRSI stamps.
In addition, you must apply to make voluntary contributions within five years of the end of the last year in which you last paid PRSI or were awarded a credited contribution.
You don’t say when you last worked but clearly your ongoing credited contributions mean you will be eligible even if you have now passed the maximum number of credited stamps that you can use to calculate your actual pension.
To apply to make voluntary contributions, you will need to fill a form called VC1, which you can find online here.
Among other things, it will ask you when you want to start making voluntary payments. Once approved, you can choose to start paying immediately or at some point within that five-year window.
How much it will cost you depends on what class of PRSI you paid most recently. If it was A (which covers most PAYE employment), E (Church of Ireland clergy) or H (soldiers and noncommissioned officers), it will cost 6.6 per cent of your reckonable income in the previous tax year, subject to a minimum bill of €500.
Self-employed people paying at Class S pay a flat rate of €650 a year.
The money can be paid in one lump sum during the year or four quarterly sums. If lump sums are not paid 12 months after the year in which they were due, you will lose out on the stamps.
If you were to start back in work, your voluntary PRSI payments would be refunded to you and no voluntary stamps awarded for the period after you restart work. However, you are allowed to pay voluntary PRSI even when you are in receipt of credited stamps, so there should be no issue for you there.
You mention voluntary national insurance contributions in the UK. One source I looked at said you would not be eligible for voluntary PRSI contributions if you were paying on a voluntary basis in another EU state, but, of course, the UK is no longer an EU state so you should be OK there.
Though now part of your query, it is worth saying that you can no longer pay voluntary PRSI once you have attained state pension age – 66.
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
