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From the cradle to the grave...

25/05/2017 Posted by Juraj Szabo | Comments(0)
Key Areas:
Retirement, State Pension, Taxation
From the cradle to the grave...

For some, it’s a lyric from a song and for others it’s a Marxist ideal that the state will take care of its citizens from the day we are born until the day we die. A nice idea but not part of the current economic plan.

If we consider our life in 3 phases; the early years which are primarily taken up with education and we are generally financially supported by our family. Our middle period is our working life and we largely support ourselves bar periods of illness or unemployment.

The final phase would be our retirement. However, a large portion of us (66% of construction workers*) are not saving for our retirement and so expect that the state will look after us during this phase. Even for the 34% of the construction sector that are saving towards a private pension, a substantial portion of our post retirement income will be provided by the state pension.

So how much is it, when does it start and how do we qualify for it?

How Much?
For those who qualify for the full state contributory pension, the weekly amount for a single person is currently €238.30 which equates to €12,391.60 per annum. There are lower amounts for those who don’t qualify for the full benefit. There is also a widow(er)’s or surviving civil partners contributory pension and increases are available where there is a qualified adult dependant.

If you don’t qualify for the contributory state pension or only qualify for a reduced amount, then you can apply for the non-contributory state pension which is a means tested benefit. Whatever your entitlement, state benefit is the bedrock of the pensions system and should ensure that nobody retires in poverty.

When does it start?
Currently, you will start to collect your state pension on your 66th birthday. From the year 2021 however, you will have to wait until you are 67 before you collect the state benefit and finally, for those born in 1961 or later, you will be 68 before you start to receive your state pension.

How do we qualify for it?
This is not an easy question to answer as it depends on when you started working, your PRSI class and how long you have being paying PRSI.

The table below summarises the PRSI classes that do and don’t qualify:

Private Sector vs Public Service

Your PRSI contributions can be Paid (usually through salary deduction), Credited (when in receipt of social welfare benefit) or Voluntary (when you are buying back missed periods). Also, Social insurance contributions paid in other EU states can count towards meeting the required PRSI average. You do not have to live in Ireland to receive this benefit.

The contributory state pension is not means tested and you can have other income and still qualify.

To qualify for the full amount, you need

  • to have started paying PRSI before age 56.
  • have paid at least 520 weekly contributions which equates to 10 years. Of this total of 520, a maximum of 260 (5 years) can be voluntary.
  • in addition, you are required to have an average of 48 weekly contributions paid or credited for each contribution year from 1979/1980 tax year to the end of the tax year before you reach the State Pension Age. 

Alternatively, if you have a yearly average of 48 or more weeks PRSI contributions from the date you started paying PRSI to the date you reach State Pension Age, you qualify for the full amount with a reduced amount payable down to a yearly average of at least 10 contributions.

In summary, the following table shows how much you will get depending on your average contributions paid:

Yearly Average PRSI contributions

If you need to apply for the non-contributory state pension, the amount payable will depend on your income and/or savings so an individual calculation is required. The maximum rate payable on a means tested basis is €227 per week or €11,804 per annum for aged 66-79 and if you are 80+ it goes up to €237 per week.

How will your pension be taxed?
All pensions are taxable but like when you are working, you will get tax credits and cut off points/Income tax rate bands. There is no USC on State Pensions. Don’t forget that there are currently extra benefits available such as rent supplement, household benefits package, fuel allowance and everybody’s favourite, the free travel pass.

Where can you get more information?
The experts are at the Department of Social Protection in Sligo and their telephone number is (071) 915 7100. You can also check out www.welfare.ie. Our advice would be to apply for you pension at least 6 months before your reach State Pension Age. However, if you feel that there may be gaps in your PRSI history, you should contact them sooner in case you need to pay any voluntary contributions.

And the good news is that it is proposed to change all this from 2020 when 30 years contributions will be needed to qualify for the full amount. Watch this space!

*CSO Survey 2015

 

Paula Thornton

Paula Thornton

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