Providing for retirement in succession planning

Now that you have decided to make that monumental decision to pass on the business to the next generation, you will have to plan for your own financial security in the future. Besides any private annuity schemes you may be contributing to, the vast majority of us expect to have the security of the Social Welfare State pension contributory (SPC, old-age pension) as the mainstay of your guaranteed income into our dotage.

The changes we know that will be introduced are an increase in the age the pension becomes payable. For those born before 1 January 1955, they will be eligible to claim the pension at age 66. If born between 1 January 1955 and the 31 December 1960 you will have to wait until your 67th birthday. Anyone born after 1 January 1961, the pension is payable on your 68th birthday.

The State pension contributory, however, is based on what Pay Related Social Insurance (PRSI) contributions you have made into the system over your entire working life. If you have any concerns about this you should request a copy of your Social Welfare insurance record and have any unexplained gaps in the record investigated. The record can be requested online (welfare.ie) or by writing to the Department at their offices in McCartan’s Rd, Ardarvan, Buncrana, Co Donegal (phone: 01-471-5898 or lo-call 1890-690-690). If you wish to talk to someone face-to-face about your pension entitlements, you can visit your local Citizens Information Centre, Social Welfare Branch Office or Intreo Centre.

As a self-employed farmer you should be aware that the payment of PRSI at “class S” rate into the system was not available until 1988. The pension regulations have taken this into account and under the present legislation they have made special provisions to allow possible qualification for the maximum pension (presently €248.30) for applicants who have had class S-rate PRSI paid from at least 1988/1989 onward.

Unfortunately, the Department of Employment is in the process of changing the rules on pension qualification. According to a statement by Minister Regina Doherty in the Dail on the 30 May 2019, she has plans to introduce a new total contribution approach pension calculation system for pension applicants who reach pension age in the third quarter of 2020 (ie 1 October 2020). So if your date of birth is on or after 1 October 1954, you will not be able to definitively calculate your pension entitlement until the legislative changes have been put in place.

The Minister’s press office, in a statement to Irish Country Living, stated that: “The minister and senior officials made clear that the position of self-employed, who have paid class S since 1988, would be very carefully considered in the design of the final scheme.”

In the absence of clarity from the Department as to how your pension will be calculated in the future, you should take measures to ensure there is no break in the continuity of your welfare insurance record that may jeopardise that pension rate.

With this in mind you should be aware that, post-succession times, if you have income from leasing, rental or investments which total in excess of €5,000 per annum, you will still be subject to a PRSI charge of class S, which will ensure continued contributions into the system.

If you have no reckonable income and you successfully apply for a means-tested welfare allowance, you should note that these payments do not generate any “credits” on your insurance record account as credits are not granted to those who were previously paying class S as a self-employed client.

Your only remaining option is to consider the voluntary contribution (VC) route. There is a time limit of 60 months in which to apply to become a voluntary contributor – as an example, if your last paid PRSI contributions were in 2014 (52 class S), you will have until the end of December 2019 in which to apply to become a VC, but if you miss this deadline you will be refused access to the scheme. Check out the SW8 booklet on the welfare.ie website for all information on voluntary contributions.

Spouse

Remember that the rate of your state pension contributory has a direct bearing on the rate of payment to your spouse if she/he qualifies for a qualified adult payment. As a guide, if they are also over pension age, it is roughly 90% of the principal pension payable, so the higher rate of SPC you qualify for, the higher the qualified adult payment will be.

The adult dependant is means tested and is not paid by right. Any income, investments or property (not including the family home) the qualified adult that is being assessed has or earns (between €100 and €319 per week) will cause a reduction in that payment. Joint bank accounts and joint ownership of property will be taken into account.

Any valuation of property made at the time of the claim for a qualified adult will not be reassessed if it subsequently goes up in value. However, you can ask for a review of your claim if the valuation of the asset reduces. You are also legally obliged to inform the Department of any upward changes in your financial circumstances, such as an inheritance of monies or property.

The formula used in converting capital or property into weekly income for means testing purposes is as follows:

For example, if you had €80,000 in a joint account then your weekly income, for means-testing purposes, from that account would be assessed on half that amount – €40,000 – which equates to a weekly income of €30. Any income plus capital/investments that total between €58,000 and €110,000 will definitely effect a reduction in the qualified adult rate. If you are already in receipt of the full qualified adult and have a possible income assessed in this range, you are being overpaid and should contact the Department immediately to have the position reviewed.