Will you be win­ner or loser in re­vamp of State pen­sion rules?

Tens of thou­sands of pen­sion­ers should see a boost to their pay­ments in the New Year, but not ev­ery­one will be bet­ter off, writes Louise Mcbride

Sunday Independent (Ireland) - Business & Appointments - - FRONT PAGE -

ABOUT 67,000 pen­sion­ers should now know — or will soon learn — if they will get a boost to their State pen­sion next year. The Depart­ment of So­cial Pro­tec­tion started to send let­ters to 67,000 pen­sion­ers in late Oc­to­ber to ad­vise them if they will be bet­ter off get­ting their State pen­sion un­der a new sys­tem — rather than the one cur­rently in place. Many of these pen­sion­ers will see their State pen­sion in­crease by be­tween €20 and €40 a week — or up to €2,000 a year — if they move to the new sys­tem. Many will also be en­ti­tled to a back pay­ment.

The new State pen­sion sys­tem, known as the To­tal Con­tri­bu­tion Ap­proach (TCA), is ex­pected to be rolled out in full in 2020. How­ever, the 67,000 pen­sion­ers be­ing writ­ten to will have the op­tion to move to the new sys­tem early next year.

Not ev­ery­one will be bet­ter off un­der the TCA than the cur­rent State pen­sion sys­tem (which is known as the ‘av­er­ag­ing’ sys­tem).

The 67,000 pen­sion­ers be­ing writ­ten to can, how­ever, choose be­tween get­ting a pen­sion un­der the cur­rent sys­tem or un­der the TCA — and opt for the one which gives them the bet­ter pen­sion. The Depart­ment of So­cial Pro­tec­tion has ex­am­ined the so­cial in­surance records of the pen­sion­ers con­cerned to es­tab­lish which sys­tem they’ll be bet­ter off un­der.

“No one will be worse off as a re­sult of this re­view,” said a spokesman for the Depart­ment of So­cial Pro­tec­tion. “If a pen­sioner does not qual­ify for an in­creased rate [of State pen­sion] un­der the TCA, they will con­tinue to re­ceive their ex­ist­ing rate of [State pen­sion] en­ti­tle­ment.” WHO CAN MOVE TO THE NEW PEN­SION IN 2019? It is only those who hit the State re­tire­ment age of 66 on — or af­ter — Septem­ber 1, 2012 who will get the op­tion to move to the TCA next year. This is be­cause many of these peo­ple saw their con­trib­u­tory State pen­sion cut by as much as €35 a week as a re­sult of changes in­tro­duced to the State pen­sion in Septem­ber 2012. Any­one who be­came el­i­gi­ble for a con­trib­u­tory State pen­sion be­fore Septem­ber 2012 wasn’t im­pacted by those changes. WHO WILL GET BACKPAYMENTS? Any of the 67,000 pen­sion­ers con­cerned who are en­ti­tled to a higher pen­sion un­der the TCA should also qual­ify for a back pay­ment — as­sum­ing they move to the TCA. Any back pay­ment due will be paid in one lump sum. You won’t get a back pay­ment if you are no bet­ter off un­der the TCA than you are un­der the cur­rent State pen­sion sys­tem. HOW WILL OTHER PEN­SION­ERS BE AF­FECTED? The TCA is ex­pected to be rolled out in full in 2020 and once this hap­pens, it will no longer be pos­si­ble to choose be­tween the two State pen­sion sys­tems. So those who reach State re­tire­ment age when, or af­ter, the TCA sys­tem is fully in place will only be able to get their State pen­sion un­der the TCA — re­gard­less of whether or not they’re bet­ter off un­der the TCA or the ex­ist­ing State pen­sion sys­tem.

Pen­sion­ers who re­tired on the State pen­sion prior to Septem­ber 1, 2012 won’t be af­fected by the roll out of the TCA — as they will con­tinue to get their pen­sion un­der the cur­rent ‘av­er­ag­ing’ State pen­sion sys­tem and so their weekly State pen­sion pay­ments won’t be af­fected. WHO WILL BE BET­TER OFF UN­DER THE TCA? Par­ents who took time out of the work­force to rear chil­dren could be bet­ter off un­der the TCA — par­tic­u­larly if they looked af­ter chil­dren prior to April 1994.

The Homemaker’s scheme is the one cur­rently in place to give par­ents credit (for the pur­pose of qual­i­fy­ing for the State pen­sion) for time spent out­side the work­force to rear chil­dren. The main draw­back of that scheme is that it does not cover any years spent look­ing af­ter chil­dren be­fore April 6, 1994. This has led to many par­ents los­ing out on the full State pen­sion.

The Gov­ern­ment is seek­ing to ad­dress this prob­lem by in­tro­duc­ing the Home­car­ing credit in con­junc­tion with the TCA. The Home­car­ing credit has no cut-off date so any­one who took time out of the work­force to look af­ter chil­dren can get credit (up to a max­i­mum of 20 years) for that time for the pur­poses of the State pen­sion — even if they looked af­ter chil­dren prior to April 1994.

Fur­ther­more, “peo­ple who have gaps in their so­cial in­surance record and who suf­fer un­der the cur­rent av­er­ag­ing sys­tem may do bet­ter un­der the TCA,” said Paul Kenny, the for­mer Pen­sions Om­buds­man and a course leader with the Re­tire­ment Plan­ning Coun­cil of Ire­land. Such peo­ple could in­clude those who started work when very young and who then took time out of the work­force to study or travel. WHO WILL BE WORSE OFF? Many peo­ple could get a much lower State pen­sion un­der the TCA than un­der the cur­rent ‘av­er­ag­ing’ sys­tem. For ex­am­ple, some in­di­vid­u­als who would have qual­i­fied for a weekly pen­sion of €238.30 un­der the cur­rent sys­tem could be en­ti­tled to a weekly pen­sion of only €95.30 un­der the TCA .

Those who have worked abroad for most of their lives, and who then re­turn to Ire­land, could be worse off un­der the TCA — par­tic­u­larly if they worked in a coun­try where so­cial in­surance con­tri­bu­tions can­not be car­ried over to Ire­land. Some self-em­ployed peo­ple could also lose out. WILL THERE BE MORE CHANGES BY 2020? The shape of the TCA pen­sion set to be rolled out in 2020 has not yet been fully de­cided on.

The TCA pen­sion cur­rently avail­able to 67,000 pen­sion­ers is an in­terim sys­tem. Un­der that in­terim sys­tem, 40 years of so­cial in­surance con­tri­bu­tions are re­quired to qual­ify for the full State pen­sion.

This is much higher than the num­ber of years’ so­cial in­surance con­tri­bu­tions re­quired to qual­ify for the full State pen­sion un­der the cur­rent ‘av­er­ag­ing’ sys­tem. There is con­cern that this 40-year rule will also ap­ply to the fi­nal TCA — though no de­ci­sion has yet been made on this.

Un­der the in­terim TCA, par­ents can avail of the Home­car­ing credit to get up to 20 years of so­cial in­surance cred­its. As the de­sign for the TCA due to come into force in 2020 has not yet been fi­nalised, there is no guar­an­tee that the Home­car­ing credit would work the same way un­der the TCA of 2020.

If you’re due to re­tire in 2020, or later, find out how you may stand un­der the new TCA sys­tem — as you should be able to take some ac­tion now which could off­set the im­pact of any cut to the State pen­sion.

“If you are due to re­tire in a few years’ time and are wor­ried that you’ll be en­ti­tled to a lower State pen­sion un­der the TCA than you would be if you were re­tir­ing to­day, it’s worth ask­ing your fi­nan­cial ad­viser what your pen­sion will be when you re­tire,” said Peter Kavanagh, head of com­mu­ni­ca­tions and pub­lic af­fairs with Ac­tive Re­tire­ment Ire­land.

“If you find that you will get a smaller pen­sion un­der the TCA than you’d get if you re­tired to­day, talk to your em­ployer and see if you can con­tinue to work into re­tire­ment — if you are fit and able to do so. Know what your rights and en­ti­tle­ments will be in re­tire­ment.”

There are many unan­swered ques­tions about the fi­nal TCA set to be rolled out in 2020 and this is bound to be of con­cern to those due to re­tire in, or af­ter, that year.

How­ever, do­ing what you can now to pre­pare for any pos­si­ble cut to the State pen­sion would be wise and should ease any blow this pen­sion re­vamp could do to your pocket.

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