The €5 budget increase to all social welfare payments, including the state pension, will be a welcome boost to many next March. However, the potential traps of the state pension system was what really hit the national airwaves last week. Case after case, elderly people talked about losing out on money from the state pension by falling a few contributions short under the Pay Related Social Insurance (PRSI) system. On the radio programmes, I heard one case of a woman who had only 460 contributions. As you need a minimum of 520, she lost out completely when she hit 66. The last time she had paid contributions was 1974, so there was plenty of opportunity.
The €5 budget increase to all social welfare payments, including the state pension, will be a welcome boost to many next March. However, the potential traps of the state pension system was what really hit the national airwaves last week. Case after case, elderly people talked about losing out on money from the state pension by falling a few contributions short under the Pay Related Social Insurance (PRSI) system.
On the radio programmes, I heard one case of a woman who had only 460 contributions. As you need a minimum of 520, she lost out completely when she hit 66. The last time she had paid contributions was 1974, so there was plenty of opportunity.
In separate cases, many women who started a summer job in their teenage years and then left employment, mainly to look after their family, found their average contributions will be very low, leading to a much reduced pension.
For readers of the Money Mentor pages, these cases studies should be nothing new. We have been highlighting the state pension traps for the last few years. However, unless you are coming close to pension age, it is something we don’t tend to connect with.
That is one reason why we are bringing Noel Leahy to the Women & Agriculture Conference, in association with FBD Insurance and Sherry Fitzgerald, to highlight the importance of understanding the PRSI system.
To summarise
• It is critical to pay PRSI contributions each year you are working. • You must have at least 520 contributions to qualify for the contributory state pension. • Your average contributions have a major impact on the weekly state pension. • The most you can get is €238.40 (+€5 from next March), but the minimum is just €95.20. • Homemakers scheme can be used to increase your average where you minded children. • You must have at least 520 contributions to avail of it. • You must return to work even for a week before you retire. • Men can avail of it as well as women. • If you farmed in your own right or in partnership, you can get PRSI contributions retrospectively. • You must have paid in at least 52 self-employed contributions (one year) before you were 66. • Adult dependence allowance can be claimed when your spouse gets the contributory pension. • It is means-tested on income and assets.Noel will go through the PRSI scheme in more detail at the conference, as well as the Homemakers Scheme, SCOPE and the adult dependent allowance. He will also highlight a specific case where, from articles in the Farmers Journal, some widows born between April 1927 and 1933 got thousands of euros back due to an anomaly in the system.
One of the key messages that we have shouted about before is that if you are 10 years or less away from the retirement age, you must focus carefully to ensure you don’t miss out.
One thing that the people on the airwaves forgot was why the changes were made to the state pension bands in the first place.
They were very generous in that you just had to have an average yearly contribution of 20 to get the full state contributory pension.
Given the increasing age profile, the country could simply not afford to continue this. Unfortunate as it is, the high cost of fixing many of the issues will mean it is unlikely to be rowed back.
It puts the spotlight back on you to make sure you understand the PRSI system and make the most of it. CL
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