What should I know as a farmer near retirement?

Question: I’m a dairy farmer and have been for my whole life. I am now nearing retirement age, and with all the changes to the state pension system I keep hearing about, I’m worried I might not qualify for the full state pension.

How do I ensure my PRSI contributions are in order each year? And what do I need to check on my tax returns? Also do my kids – who are just starting out on the farm – need to be worried about this too?

Answer: Your question is timely, especially with the recent changes set to affect many in the farming community. The state pension (contributory) has undergone change and is now calculated based on a Total Contributions Approach (TCA).

This means your eligibility and payments depend on the total number of PRSI contributions made over your working life. The previous system is being phased out, and TCA will be the sole system from 2024.

With TCA, to qualify for the full state pension (currently €277.30 per week), you need 40 years (or 2,080 weeks) of PRSI contributions. Partial pensions are available for those with fewer contributions, but the payments will be lower.

Registering for PRSI

This can present unique challenges for many farmers’ spouses who may have been heavily involved in farming but not included in income tax returns. Despite contributing to the farm’s success, they might not have been registered for PRSI.

1. Registering contributions: If you were actively involved in the farm but not included in tax returns, you may still be able to qualify for PRSI credits. Contact the Department of Social Protection to explore if past contributions can be recognised through home-caring periods or voluntary contributions.

2. Claiming home-caring periods: If you were caring for children or an elderly family member, these periods may qualify for pension credits under the TCA. These credits can fill gaps in your record and are especially relevant to spouses who balanced farming with caregiving duties.

3. Updating records: Check for any records, such as partnership agreements or shared farm responsibilities. These are helpful in discussions with the Department of Social Protection.

Filling in your tax return

For farmers, who often work as self-employed individuals, ensuring your PRSI contributions are up to date is crucial. Each year, when filing your tax return, ensure the following:

1. Self-employed PRSI (Class S): This contribution class applies to most farmers. Your annual PRSI contribution is calculated as part of your income tax return. Pay close attention to the “self-employed PRSI” section to ensure it’s paid in full. It could cost you valuable weeks towards your pension if it’s missed or underpaid.

2. Minimum income thresholds: If your farm income falls below €5,000 in a year, you may not automatically qualify for PRSI contributions. In this case, you can opt to pay voluntary contributions to keep your pension record intact. This is important during difficult years or if you’re transitioning between farming and other work.

3. PRSI records: You can request a Statement of Contributions from the Department of Social Protection to check your contribution history. You’ll need to act quickly if there are gaps, as only certain years can be back-paid.

4. Unforeseen circumstances: If illness or injury prevents you from farming for a time, credits may be available to protect your pension. Make sure you’re aware of how to apply for these.

Children on the farm

Many young farmers start working on the family farm before they’re officially registered for PRSI. If your children are under 16, they won’t be making PRSI contributions, and any work they do in those years won’t count towards their pension.

Once they turn 16, it’s essential they’re properly registered as employees or self-employed (depending on the arrangement) so that PRSI contributions start accruing. If your children go on to college or training, and farming is more part-time, they may still qualify for credits if they’re registered correctly. Transitioning smoothly from education to farming is key.

Contributory pension

The state pension is contributory. This means it is not means tested and doesn’t depend on your assets or savings. Instead, it’s based solely on your PRSI contributions. For many farmers, this is a lifeline in retirement, providing a steady income regardless of fluctuations in farm income or market conditions.

The changes may seem daunting, but with a little preparation, you can secure a comfortable retirement for yourself and set the next generation on the right path.

Marty Murphy is head of tax at ifac,which is the professional services firm for farming, food and agribusinesses.