State pen­sion qual­i­fi­ca­tion sys­tem is full of quirks

You may be­lieve you should be en­ti­tled to money in your re­tire­ment, but the State may not

The Irish Times - - Front Page - Fiona Reddan

As thou­sands of women have dis­cov­ered in re­cent years, the State pen­sion qual­i­fi­ca­tion sys­tem is full of quirks. Thirty-six thou­sand peo­ple, close to two-thirds of them women, have found them­selves with much lower pen­sion en­ti­tle­ments than they would oth­er­wise have had, all be­cause they worked for a few years be­fore tak­ing time out to raise their fam­i­lies – es­pe­cially those who missed out on the home­maker’s credit, which ap­plies only from 1994.

But this is not the only quirk. If you work just four hours a week in a min­i­mum-wage job you’ll qual­ify for a full State pen­sion. How­ever, if you work full-time for just five weeks of the year (roughly the same num­ber of hours over the year), you’ll only get a re­duced rate.

And if you work the same amount of time but as a self-em­ployed per­son, you won’t get any­thing at all.

The pen­sion will be worth ¤243.30 (un­der 80) or ¤253.30 (over 80) a week from March 2018.

It has been es­ti­mated that it would cost about ¤250,000 to repli­cate the value of the full State pen­sion in the pri­vate sec­tor; and yet so many of us are un­sure as to whether or not we’ll qual­ify for it.

It’s clearly an enor­mous en­ti­tle­ment. And whether you’ve spent years in the home or years in the work­force, mak­ing sure that when you turn 66, 67 or 68 – or what­ever higher age en­ti­tle­ment moves to over com­ing years – en­sur­ing you are en­ti­tled to a full State pen­sion in your own name should be close to the top of your to-do list.

The wel­fare sys­tem is not al­ways fair, how­ever. And just be­cause you be­lieve you should be en­ti­tled to some­thing does not mean the State does.

The an­swer, then, is prepa­ra­tion. For women now in re­tire­ment, who have seen thou­sands wiped off their en­ti­tle­ment due to hav­ing worked early in their ca­reer, and then hav­ing stopped for what­ever rea­son, it may be too late, par­tic­u­larly given the wishy-washy re­sponse from Min­is­ter for So­cial Pro­tec­tion Regina Do­herty to the is­sue. But for the gen­er­a­tions to come, a lit­tle bit of knowl­edge, fore­sight and ac­tion may en­sure that you max­imise your en­ti­tle­ments.

Oth­er­wise, you will have to de­pend on a non-con­trib­u­tory pen­sion, which is means-tested and which re­duces on a ta­pered scale by ¤2.50 per week for every ¤2.50 of weekly as­sessed means. This means you could end up with a de­risory pay­ment – or noth­ing at all. has seen the afore­men­tioned women lose their en­ti­tle­ment to a full pen­sion: as the pop­u­la­tion ages, the State pen­sion is get­ting more and more ex­pen­sive, so the Gov­ern­ment is try­ing to cut costs by mak­ing it more dif­fi­cult to qual­ify for the pay­ment.

The State pen­sion is cal­cu­lated by av­er­ag­ing a worker’s PRSI con­tri­bu­tions over their work­ing life­time. Since 2012, you need 10 years’ con­tri­bu­tions – 520 in­di­vid­ual con­tri­bu­tions to qual­ify.

But you also need an av­er­age of 48 con­tri­bu­tions a year to get a full pen­sion. So, if you worked full-time, then worked a bit for a long time, you might find your­self on the wrong end of the cal­cu­la­tions. Any sub­stan­tial gap will cut the av­er­age con­tri­bu­tions.

For ex­am­ple, while some­one with an an­nual av­er­age of 48 con­tri­bu­tions over their work­ing life will be en­ti­tled to the full pay­ment of ¤243.30 from March next year, if your av­er­age is just 32 con­tri­bu­tions the pen­sion pay­ment will drop to ¤219.20, or as low as ¤100.20 if your an­nual av­er­age is 10-14 weeks.

For ex­am­ple, if you worked full time for 10 years, then dropped to ca­sual work, of about eight weeks a year for the next 20, then went back to work full time for 10 years, you’ll only have an av­er­age of 30 con­tri­bu­tions a year over th­ese 40 years, so you’ll be on the lower rate of pay­ment.

The key then is to make a con­tri­bu­tion each week if at all pos­si­ble – and, as you’ll see be­low, this can be achieved from work­ing as lit­tle as a few of hours a week.

What if I work part-time?

If you work part-time, you might en­joy bring­ing in some ex­tra in­come for your fam­ily. What you might not be aware of, how­ever, is that even if you are pay­ing PRSI stamps, you may not be mak­ing enough to en­sure full en­ti­tle­ment for the pen­sion.

Cur­rently, if you are self-em­ployed and earn less than ¤5,000 a year, you won’t be pay­ing S-class PRSI con­tri­bu­tions, which means you won’t be build­ing up a State pen­sions record.

How­ever, for the cost of ¤500 a year (up from just ¤253 back in 2013) you can be­come a “vol­un­tary con­trib­u­tor” which will main­tain your en­ti­tle­ment to a full pen­sion.

Yes, ¤20,000 over 40 years will se­cure you up to ¤250,000 in re­tire­ment – depend­ing on how long you live, of course – so it’s worth con­sid­er­ing.

But be­fore you start writ­ing that cheque, there is another con­sid­er­a­tion; from 2015 Gov­ern­ment pol­icy has made it more dif­fi­cult to be­come a vol­un­tary con­trib­u­tor. In or­der to do so now, you need to have 10 years’ – or 520 – paid PRSI con­tri­bu­tions to qual­ify. This is up from 468 from 2014, and from just 364 be­fore than.

If you do qual­ify, your con­tri­bu­tion can be paid as a lump sum be­fore the end of the con­tri­bu­tion year or by quar­terly or half-yearly in­stal­ments dur­ing the con­tri­bu­tion year.

And re­mem­ber, you only have a small win­dow to make the pay­ment – it must be paid no later than five months af­ter the end of the year in which the pay­ment is due.

The form you will need to fill out can be found at: www.wel­

Other part-time work­ers need to keep an eye on pos­si­ble changes. Cur­rently, if you earn just ¤38 a week (¤1,976 a year) – or just about four hours on the min­i­mum wage – you’ll qual­ify for a full State pen­sion.

That’s not a bad re­turn, which is why, last year, the Depart­ment of So­cial Pro­tec­tion said the ben­e­fit of the pen­sion “may be dis­pro­por­tion­ate to [claimants’] in­come when in em­ploy­ment”.

The Gov­ern­ment has con­sid­ered in­creas­ing the earn­ings thresh­old to ¤70 a week, or ¤3,900 a year – still less than the thresh­old for the self-em­ployed.

I’m a stay-at-home par­ent: what about me?

While women in years gone by may have stopped work­ing al­to­gether when mar­riage and ba­bies came along, it’s still true that women have a “fluid” re­la­tion­ship with the work­place. Fig­ures just pub­lished by the Cen­tral Statis­tics Of­fice show that some 445,500 women stayed at home to look af­ter their fam­i­lies in 2016, with just 9,200 men per­form­ing the same role.

While the rate of growth of men opt­ing to stay at home has soared, it will take a few gen­er­a­tions yet be­fore it could, if ever, reach any equi­lib­rium.

So what does this mean for women (and men) who may have dipped in – and out – of the work­force to rear their fam­i­lies?

In­tro­duced in 1994, the home­maker scheme makes it eas­ier for women – and men – who have spent a num­ber of years out­side the work­force car­ing for chil­dren or a de­pen­dent rel­a­tive to qual­ify for a con­trib­u­tory State pen­sion.

Un­der the scheme, up to 20 years can be dis­re­garded when the yearly av­er­age num­ber of con­tri­bu­tions for a con­trib­u­tory pen­sion is be­ing cal­cu­lated.

This means that if you worked full time and then stopped for up to 20 years to care for a fam­ily, those 20 years won’t be counted and so won’t drag down your “av­er­age”, and should en­sure a higher rate of pen­sion.

Typ­i­cally, you won’t have to ap­ply for it. If you are al­ready claim­ing child ben­e­fit, carer’s al­lowance, carer’s ben­e­fit or a respite care grant, you will au­to­mat­i­cally be en­ti­tled to it.

Nor­mally, child ben­e­fit is regis­tered in the child’s mother’s name. But you do have to re­turn to work for the home­maker’s scheme to be ef­fec­tive. Ac­cord­ing to the depart­ment, while you are not obliged to re­turn to the work­force im­me­di­ately af­ter the home­maker pe­riod ends (ie af­ter 20 years), if you have an in­sur­ance record gap of more than two years the cred­ited con­tri­bu­tions you earned dur­ing your home­maker pe­riod can’t be used for pen­sion as­sess­ment pur­poses un­til you go back to work again, and pay a min­i­mum of 26 con­tri­bu­tions.

What about my time work­ing abroad?

If, like many peo­ple, you spent time work­ing abroad and then came home, you might be ner­vous of your el­i­gi­bil­ity. Af­ter all, if you started work in Ire­land at the age of 18 for ex­am­ple, then left for 15 years, your PRSI record will have started when you were just 18, which means your av­er­age is likely to be sig­nif­i­cantly lower than it oth­er­wise would have been, due to the gap of 15 years.

How­ever, it will de­pend on where you worked.

So­cial in­sur­ance con­tri­bu­tions paid across the 27 other Euro­pean Union coun­tries, as well as EEA states, are taken into ac­count when as­sess­ing el­i­gi­bil­ity. The same is true for the United States, Canada, Aus­tralia, Ja­pan, New Zealand, South Korea and the Chan­nel Is­lands as well as the Isle of Man.

A full list can be found at cit­i­zensin­for­ma­

Ac­cord­ing to a spokes­woman for the Depart­ment of So­cial Pro­tec­tion, when cal­cu­lat­ing en­ti­tle­ment, “the Ir­ish con­tri­bu­tions are con­sid­ered on their own firstly, then they are con­sid­ered when com­bined with EU con­tri­bu­tions and, fi­nally, they are con­sid­ered when com­bined with one bi­lat­eral coun­try in­sur­ance con­tri­bu­tions.”

The key is that you must have a min­i­mum of 52 weeks of Ir­ish in­sur­ance to com­mence the process.

And bear in mind, as my col­league Do­minic Coyle re­cently pointed out, just be­cause you are en­ti­tled to an Ir­ish State pen­sion due to for­eign con­tri­bu­tions it doesn’t mean you will be en­ti­tled to one at the full rate. Ac­cord­ing to the depart­ment, the cal­cu­la­tion as to how much you will get is as fol­lows: num­ber of reck­on­able paid and cred­ited Ir­ish con­tri­bu­tions di­vided by the com­bined to­tal of reck­on­able paid and cred­ited Ir­ish and EU or bi­lat­eral con­tri­bu­tions. The move to to­tal con­tri­bu­tions

For new en­trants to the work­force, how­ever, all of the above will no longer ap­ply. Yes, from 2020 – ap­par­ently in con­junc­tion with the Gov­ern­ment’s new auto-en­rol­ment scheme, which is due to start at the same time – the State pen­sion will be based on peo­ple’s to­tal con­tri­bu­tions over their work­ing lives, rather than an av­er­age of con­tri­bu­tions.

Ac­cord­ing to Ms Do­herty, it will be an op­por­tu­nity “to to­tally over­haul” the cur­rent regime, and “will make the sys­tem straight­for­ward”.

How­ever, her next com­ment may strike fear into the hearts of many: “You will get from your pen­sion ex­actly what you put in,” she said.

So does this mean that, if you work part-time, you will be en­ti­tled to a much lower pay­ment? Or if you take time out from the work­force, your to­tal con­tri­bu­tions will be less, ergo your State pen­sion will be less?

While it’s still too early to say how the new sys­tem will work, as the de­tail sim­ply isn’t there, in­dus­try ex­perts are al­ready con­cerned.

Mairead O’Ma­hony, de­fined con­tri­bu­tions leader for Ire­land with Mercer, ques­tions whether the new regime will ac­tu­ally solve the is­sue fac­ing women, and notes that any im­pact on the pen­sions of part-time work­ers will hit women hard.

“It’s dif­fi­cult to see what they’re plan­ning to do,” she says, adding she would like to see a “pro­gres­sive step in right di­rec­tion” as op­posed to “cre­at­ing fur­ther holes that will need to be ad­dressed”.

‘‘ How do I get the full pen­sion?

It’s a trend that started in 2012 and which

If you are self-em­ployed and earn less than ¤5,000 a year, you won’t be build­ing up a State pen­sions record

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