I did a financial review recently and found out that I will not qualify for a full pension, despite working as a farmer all my life, paying my tax and PRSI. I am told that it is due to changes that were introduced
to pensions. I started paying PRSI in 2004 when the farm was transferred to me at the age of 35 years. I will be at the pension age in
10 years time. Can you throw any light on it?
ANSWER: From 1 January 2025, Ireland began a 10-year phased transition from the old Yearly Average (YA) pension calculation method to the Total Contributions Approach (TCA) for the Contributory State Pension. During this transition period, pension amounts may be calculated as the more generous of the old or new method. Ultimately by 2034, only the TCA will be used. To better understand how it works in practice, it can be broken down into two separate calculations, as outlined below.
Method 1– Total Contributions Approach (TCA)
You qualify for the maximum Contributory State Pension if you have 40 years employment (2,080 or more PRSI contributions). If your combined total of paid contributions from work, voluntary contributions, long-term carers contribution or home caring contributions is at least 2,080 you will get the maximum contributory state pension. If it is less than 2,080 you will qualify for a reduced rate.
You mention that you first started paying PRSI in 2004 when the farm was transferred to you at 35 years of age. You were born in 1969. Consequently you will have 31 years of service when you reach 66 years of age or 1,612 contributions. This would entitle you to 77.5% of the maximum pension (1,612/2,080 x 100 = 77.5%).
The maximum Contributory State Pension rate depends on your age when you first draw down your pension. For example, under current payment rates, if you are 66 years at drawdown, the maximum weekly rate is €289.30 per week whereas it’s €302.90 if you are 67 years at drawdown. When calculated, 77.5% of this gives you a payment of €224.20 at 66 years or €234.75 at 67 years. You will not be able to draw down the full pension until you have 40 years contributions, whereas you will only have 31 years of contributions. Under the previous Yearly Average system, you would have qualified for the full pension.
Method 2 – Yearly Average (YA)
This method calculates the average number of contributions you have made each year from the year you first entered insurance to the end of the tax year before you reach pension age.
You need an average of 10 contributions a year paid or credited to get a minimum pension and you need an average of 48 a year to get the maximum pension.
Assuming you will have paid an average of 48 contributions a year since you first entered insurance in 2004 to the end of the tax year before you reach pension age, you should qualify for the maximum pension which is €289.30 in 2025 when you start to claim at 66 years of age.
Consequently, you will be €65.10 less well off each week arising from the new system, which equates to €3,385.20 per annum.
You reach pension age at 66 years but you can defer your pension up to age 70.
The longer you defer it, the more you get paid each week. There will be a 10 year phased removal of the YA method which means that all pensions will be calculated using the TCA by 2034.
Table 1.
From 2025-2034, both the TCA and the YA method will be used to calculate your state pension rate. The ratio or percentage depends on the year you draw down your state pension – see table above. By 2034, all pensions for people born on or after 1 January 1968 will be calculated using the TCA method.
Aisling Meehan, agricultural solicitors and tax consultants.
Disclaimer: The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, Agricultural Solicitors and Tax Consultants does not accept responsibility for errors or omissions howsoever arising. E-mail aisling@agrisolicitors.ie
I did a financial review recently and found out that I will not qualify for a full pension, despite working as a farmer all my life, paying my tax and PRSI. I am told that it is due to changes that were introduced
to pensions. I started paying PRSI in 2004 when the farm was transferred to me at the age of 35 years. I will be at the pension age in
10 years time. Can you throw any light on it?
ANSWER: From 1 January 2025, Ireland began a 10-year phased transition from the old Yearly Average (YA) pension calculation method to the Total Contributions Approach (TCA) for the Contributory State Pension. During this transition period, pension amounts may be calculated as the more generous of the old or new method. Ultimately by 2034, only the TCA will be used. To better understand how it works in practice, it can be broken down into two separate calculations, as outlined below.
Method 1– Total Contributions Approach (TCA)
You qualify for the maximum Contributory State Pension if you have 40 years employment (2,080 or more PRSI contributions). If your combined total of paid contributions from work, voluntary contributions, long-term carers contribution or home caring contributions is at least 2,080 you will get the maximum contributory state pension. If it is less than 2,080 you will qualify for a reduced rate.
You mention that you first started paying PRSI in 2004 when the farm was transferred to you at 35 years of age. You were born in 1969. Consequently you will have 31 years of service when you reach 66 years of age or 1,612 contributions. This would entitle you to 77.5% of the maximum pension (1,612/2,080 x 100 = 77.5%).
The maximum Contributory State Pension rate depends on your age when you first draw down your pension. For example, under current payment rates, if you are 66 years at drawdown, the maximum weekly rate is €289.30 per week whereas it’s €302.90 if you are 67 years at drawdown. When calculated, 77.5% of this gives you a payment of €224.20 at 66 years or €234.75 at 67 years. You will not be able to draw down the full pension until you have 40 years contributions, whereas you will only have 31 years of contributions. Under the previous Yearly Average system, you would have qualified for the full pension.
Method 2 – Yearly Average (YA)
This method calculates the average number of contributions you have made each year from the year you first entered insurance to the end of the tax year before you reach pension age.
You need an average of 10 contributions a year paid or credited to get a minimum pension and you need an average of 48 a year to get the maximum pension.
Assuming you will have paid an average of 48 contributions a year since you first entered insurance in 2004 to the end of the tax year before you reach pension age, you should qualify for the maximum pension which is €289.30 in 2025 when you start to claim at 66 years of age.
Consequently, you will be €65.10 less well off each week arising from the new system, which equates to €3,385.20 per annum.
You reach pension age at 66 years but you can defer your pension up to age 70.
The longer you defer it, the more you get paid each week. There will be a 10 year phased removal of the YA method which means that all pensions will be calculated using the TCA by 2034.
Table 1.
From 2025-2034, both the TCA and the YA method will be used to calculate your state pension rate. The ratio or percentage depends on the year you draw down your state pension – see table above. By 2034, all pensions for people born on or after 1 January 1968 will be calculated using the TCA method.
Aisling Meehan, agricultural solicitors and tax consultants.
Disclaimer: The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, Agricultural Solicitors and Tax Consultants does not accept responsibility for errors or omissions howsoever arising. E-mail aisling@agrisolicitors.ie
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