# Is it worth contributing to a pension, as the state pension wll probably be means tested?



## smithers (6 Mar 2017)

Hi,

I am trying to decide whether to invest in a pension or whether it will just end up being means tested and because I have it I will not get the state pension. What is the likelihood of this happening? Everyone knows the state pension is unsustainable so if I do have my own private pension are they likely to say well now you don't get the state pension. It's always a concern in this country, if you have nothing you get provided for or if you try to provide for yourself at all you get nothing. What do people think? Is it worth the risk and making the sacrifices to save into a pension?


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## Joe_90 (6 Mar 2017)

I've 27 years left to the state pension.  I'm not even considering there being a state pension for me.

Mrs_90 is in Civil Service so hopefully she will get hers and I'll have my own.


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## JoeRoberts (6 Mar 2017)

There is little doubt in my mind it will be means tested. The question is when, and at what level the means test starts. I would still provide for one and worry about it later. Don't use it as an excuse. At least save for retirement in some fashion.


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## Palerider (6 Mar 2017)

I have had the pleasure of working with older people of various demographic financial background and means, none, not even the wealthiest ever said they could not do with a little more so do put monies away for your future, paddle your own canoe, old but solid advice.


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## noproblem (6 Mar 2017)

You do know that the non contributory state pension IS means tested


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## torblednam (6 Mar 2017)

Joe_90 said:


> I've 27 years left to the state pension.  I'm not even considering there being a state pension for me.
> 
> Mrs_90 is in Civil Service so hopefully she will get hers and I'll have my own.



So you're counting on the even more generous public sector scheme living up to its promises?!

I'm a civil servant and my wife is also public sector and I'm trying not to count on our occupational schemes delivering at the crazy DB levels they're currently promising... I'm assuming some apocalyptic event (aka the Germans/ Chinese paymasters) will happen between now and our retirement in 30+ years...


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## Steven Barrett (7 Mar 2017)

Quite a gamble to take...

I personally don't think it will be means tested as it will mean the party that brings it in will be run out of government. The whole idea of PRSI payments is that it provides for your pension at 68 (I know it's spent on general expenditure but that's another topic). How is a government going to introduce legislation saying that for those who worked for 40 years and paid their taxes get nothing while those that didn't get €12,000 a year? 

Then there is the cost of the benefit. The State pension would cost you about €300,000. The average pension fund is €8,000. How are they going to administer that one? You can't have someone who had a private pension getting a small monthly pension while someone who spent their way through life getting more than them. They can't administer the child allowance so that those on high salaries don't receive it. There's no way they can administer variable pension benefits. 

The truth is, €12,000 won't give you a great retirement. You also want more than one income stream for when you do retire. Private pensions are a great way to save for retirement, so put one in place and try to have other savings too. 


Steven
www.bluewaterfp.ie


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## Brendan Burgess (7 Mar 2017)

This is a real dilemma. If you squander your money now, the state will look after you in retirement.   

If you save hard, especially via a pension scheme, it's very likely that the state will say "You are ok, we must allocate the scarce resources to those most in need i.e. those who didn't bother with a private pension." 

There are two solutions. 

1) Force everyone to contribute to a pension, so that they won't need an OAP when they retire.  
2) As I have suggested elsewhere, put people's PRSI contributions into an individualised account.  The more you have on retirement in that account, the more pension you get.  Then cut the non-contributory pension dramatically. 

Brendan


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## JoeRoberts (7 Mar 2017)

SBarrett said:


> Quite a gamble to take...
> 
> I personally don't think it will be means tested as it will mean the party that brings it in will be run out of government. The whole idea of PRSI payments is that it provides for your pension at 68 (I know it's spent on general expenditure but that's another topic). How is a government going to introduce legislation saying that for those who worked for 40 years and paid their taxes get nothing while those that didn't get €12,000 a year?
> 
> ...


The "vulnerable in society" argument will take over Steven. This is the way the country is heading. Initially the means testing will be a fairly high level to catch the prudent "fat cats" only, then lowered.

I could roll back and make part of your argument 20 yrs ago as follows:  the _"whole idea of PRSI payments is that it provides for your pension at* 65*"

_


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## Merowig (7 Mar 2017)

Sounds like legalised stealing again.


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## so-crates (7 Mar 2017)

SBarrett said:


> Quite a gamble to take...
> The State pension would cost you about €300,000. The average pension fund is €8,000.


Out of curiosity Steven, I assume by this you mean that the average of all pension funds, not just those of people at retirement age, is €8,000. Even given that it seems shockingly low but I assume that the average for people over the age of 50 is higher?


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## so-crates (7 Mar 2017)

In response to the OP, the state pension is pretty minimal really, especially if you have been accustomed to a more ... generous ... pay cheque. Not saving for your own pension will mean that your possible income is limited to whatever the government of the day provides, in all likelihood, you will have little or no say in the matter aside from which party you vote for. Even in the worst case scenario with a future regime deciding that self-provision, prudence, forethought and planning on your part should be <ahem> rewarded by them refusing to pay out on the basis of your contributions, if you have the means to do so you will accumulate a fund that will yield a higher income. Even if you don't, gambling on a single income stream is ill-advised. At present the tax incentives for putting money into your own pension are good, in effect you are getting the state to contribute towards your private pension fund, might as well take advantage of that while it is available.


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## mtk (7 Mar 2017)

I agree this is a dilemma .
overall I agree with sbarrett.

I think it's the non contributory oap that needs to be tackled  relative to the contributory but i doubt it will be .


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## Brendan Burgess (7 Mar 2017)

mtk said:


> I think it's the non contributory oap that needs to be tackled relative to the contributory but i doubt it will be .



As I have suggested in this article

A person who works for years and pays PRSI should get a much higher pension that someone who has been on the dole all their life. The non-contributory social welfare pension also needs to be reduced from its current level. For example, it's €377 for a couple in the Republic compared to €309 in the North.


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## ashambles (7 Mar 2017)

SBarrett said:


> I personally don't think it will be means tested as it will mean the party that brings it in will be run out of government.


Unfortunately I think you're being too optimistic.

The government changed one test for the pension, the age limit by 3 years to 68.

They increased the number of contributions needed. I believe it's currently 48 per year to retirement age. I'd guess that not many will get full pensions in future as they'll have periods of unemployment and working until 68 won't be common.

They reduced limits on pension fund sizes and contributions and have made no effort to increase them even slightly in line with inflation.

They launched the pension levy on private funds. Compare the reaction to the 2.2B pension levy with the reaction to water taxes which took in around 200m.

A government could easily announce they were means testing pensions for people with their own income of maybe 75k as a starting point. Might even win them votes from our electorate.


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## Steven Barrett (7 Mar 2017)

so-crates said:


> Out of curiosity Steven, I assume by this you mean that the average of all pension funds, not just those of people at retirement age, is €8,000. Even given that it seems shockingly low but I assume that the average for people over the age of 50 is higher?



No that is the average value of pension funds at retirement age. 


Steven
www.bluewaterfp.ie


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## shweeney (7 Mar 2017)

it may be reduced or kicked further into old-age, but I can't see it ever being removed.  The whole point of the contributory pension is you contribute, then you get the benefit. There's a direct link and an implied contract - the government can't just say to people that have contributed 20, 30, 40 years that they'll get nothing, there'd be war over it. For many people who pay PRSI the pension is the only real benefit they'll ever see.

More likely is some sort of radical reform changing it to something akin to an obiligatory defined contribution scheme, but they'd still have to provide benefit to those who paid in under the old system.


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## Merowig (7 Mar 2017)

SBarrett said:


> No that is the average value of pension funds at retirement age.
> 
> 
> Steven
> www.bluewaterfp.ie



According to the Irish Life Readiness Report from 2014 the average pension fund size of alltheir DC schemes was 46k. The actual projected pension then was 7.9k at retirement.

According to http://www.thejournal.ie/pension-cover-ireland-2565427-Jan2016/ the average pension payout is 6k


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## Gerry Canning (7 Mar 2017)

No doubt State Pension will be changed and fiddled with.
But I think we are suffering from too much (austerity) (not trusting  government) .
Times have gone from negativity to positivity and back again , ! and we have all become experts in demographics etc !

There will be changes and if they end up being negative , I think I would prefer some hit on my private pension to relying on an underpressure state pension.
So get a pension and worry about 2060 then !

At worst you will have something.


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## Merowig (7 Mar 2017)

Gerry Canning said:


> No doubt State Pension will be changed and fiddled with.
> But I think we are suffering from too much (austerity) (not trusting  government) .
> Times have gone from negativity to positivity and back again , ! and we have all become experts in demographics etc !
> 
> ...



Austerity means to reduce public expenditure. I see nothing wrong with that if a government is not spending more than it earns and avoids creating liabilities for future generations.
I have no reason to trust the government and personally I don't want to be hit on my private pension while other people squandered their money while I was saving. See the Ant and the Grasshoper.


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## Gerry Canning (7 Mar 2017)

Merowig , I hear you .

But don,t let your mistrust cloud the reality of tax free pension growth + tax advantages today.
Even if your private pension was hit for 20% in thirty years, you would still be {grumpingly } ahead .
Also any savings you manage to squirrel away  today have to beat the tax advantages of pension inputs ,

This all presumes the Bleak Future !


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## Merowig (7 Mar 2017)

I completely agree with that - I am already maximising my employer contributions but the same time I also try to diversify my investments/ savings.
Even with the pension levy, saving for a pension was still very advantageous.


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## Gerry Canning (7 Mar 2017)

Merowig ,
                I am in the happy position , or is it unhappy ? of being old nuff , not to worry about 30 years hence !!!
That Pension Levy was so , so wrong and counter productive . It really stalled younger people from taking pensions and they the very ones who need pension cover.


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## smithers (9 Mar 2017)

Thank you all for your advice on this, having thought about it I think it will be worth putting something into a pension to maximize tax relief and make sure to minimize chance of poverty in old age. Will have to wait and see what brave government will means test the contributory state pension after people paying PRSI for years.....in the meantime i can only plan on how things currently stand.


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## Protocol (9 Mar 2017)

shweeney said:


> it may be reduced or kicked further into old-age, but I can't see it ever being removed.  The whole point of the contributory pension is you contribute, then you get the benefit. There's a direct link and an implied contract - the government can't just say to people that have contributed 20, 30, 40 years that they'll get nothing, there'd be war over it. For many people who pay PRSI the pension is the only real benefit they'll ever see.
> 
> More likely is some sort of radical reform changing it to something akin to an obiligatory defined contribution scheme, but they'd still have to provide benefit to those who paid in under the old system.




Yes.

You can't means-test the CSP, as we already have a means-tested NCSP.


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## Brendan Burgess (9 Mar 2017)

Protocol said:


> You can't means-test the CSP, as we already have a means-tested NCSP.



When the state runs out of credit, they will have to allocate scarce resources to the people of greatest need. 

People who would have qualify for the Contributory State Pension are likely to have other means. 
Those who don't qualify are likely to have no means, and will get priority in the queue.

Unless some version of  my proposal for individualised PRSI accounts is adopted. 

Brendan


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## cremeegg (9 Mar 2017)

Brendan Burgess said:


> When the state runs out of credit



By this I suppose you mean when the ratio of retired people to working people exceeds anything that can be supported by the working people, which is inevitable. Rather than due to mismanagement of the economy, which is not.



Brendan Burgess said:


> Unless some version of  my proposal for individualised PRSI accounts is adopted.



This does not solve the problem. Your asset is somebody else's liability. If there aren't enough somebody elses to provide a return on your asset, its worthless. 

If there are not enough workers to run the factory it doesn't matter who owns it.


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## jjm (9 Mar 2017)

Brendan I don't think you understand how Ireland works.When the state runs out of credit to pay pensions the will give whatever the have to the people who have it in writing not to the most in need.You would be more likely to get results by highlighting how unfair the system is at present.To give you an example take  2 people on the same wages paying the same prsi and expecting to get the same retirement pension from the state

(1) private sector earning say the same wages as a Grade 3 public servant lets say 37000 Euro paying PRSI A contribution just say the are the same age lets say they retire  in the morning at 66 having 40 years service they will get around 12376 Euro per year there is nothing to stop the state from lowering the amount paid.If the government lowers there pension by 10000 euro that is all they will getting 2376 euro from the state

(2) public servant earning say the same wages as a private sector worker lets say 37000 Euro paying PRSI A contribution just say they are the same age lets say they retire in the morning at 66 having 40 years service  they will get 12376 Euro state pension they will also get another 6124 Euro pension which they have paid for so they will end up with half of there 37000 wages 18500 euro.the state will still be on the hook to pay the 12376 to make up there pension to 18500.this is not an over sight this is how Ireland works.

I don't want this to be taken or turned into public Servent bashing far from it in fact present public Servents paying the PRSI A Stamp along with paying to bring there pension up to 50% of final salary also paying a Pension levy along with there own pension Contributions to support people who paid 5% less PRSI than them they will never ever get any credit for this levy again this is how Ireland Works and is not fair ,


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## Protocol (9 Mar 2017)

Brendan,

are I right in thinking you are calling for a closer link between SI conts and SI benefits?

Well, in terms of the CSP, that is planned.

The plan is to move from a CSP based on average conts to one based on total conts.

So then those who have paid more conts will get a bigger pension.


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## jjm (10 Mar 2017)

Protocol. What the government are saying and actually doing are not the same or fair.Take my own case I having worked full time and paid a stamp which was 33% of my wage in 1970 I have worked full time for over 45 years .In 1985 I was on lay off and worked 41 weeks .in 1986 worked I worked 45 weeks and in 1987 I worked 46 weeks since then I have never being out of work since.My employment contract says Date of retirement is when I reach my 65 birthday,The change the government made in 2014 for someone like myself  who have paid in for over 45 years was to take away the transition pension which was paid to people like myself who had more than an average of 48 stamps over there life time working. This used to be paid from age 65 to age 66.Before it was taken away Government were aware that the change would affect about 83.9% of people.The company I work for are allowing people to work until they are 66 provided they have no health issues that is affecting there work.I think if you have another look you will see the so called closer link between S1 conts and S1 benefit is a lot lower than the average of 48 which was needed to get the max transition pension.I suppose they can say what Transition pension there is no such thing


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## Gordon Gekko (10 Mar 2017)

Hi Brendan,

In Switzerland they operate a similar system with regard to unemployment benefit. If you lose your job, the payments equate to 80% of your income for a two year period.

The flipside is the fact that fines for things like speeding are not flat-rate; they're also a function of one's income.

Gordon


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## Aurelia (19 Apr 2017)

With regard to paying voluntary prsi contributions for pension purposes, has anyone else working abroad and paying voluntary prsi contributions been asked to declare their worldwide income this year as their yearly contribution cost is going to be 6.6percent of all their income instead of the usual flat rate of about 500. So say you earned 50000 abroad you would have to pay about thre or four thousand pounds instead of the usual flat rate. This is the first year i have been asked to pay this and when i rang the office they say the 6.6percent Fee on all income has always been in place. On the website it clearly says 6.6 percentof all reckonable income, reckonable meaning taxable irish income which is different from all worldwide income. Is this a change?
In the uk if one is living abroad one pays 2.85 a week pension contribution which works out far less than the flat rate of about 500euro the irish used have to pay but we are used to being ripped off. But this takes the biscuit 6.6percent on all worldwide income which could work out at thousands of pounds yearly contribution for a pension which probably wont exist! Do the lawmakers have no shame.


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## Gordon Gekko (19 Apr 2017)

I pay 4% and my employer pays 10.75%, so circa 15% in total.

Why should someone living overseas object to paying 6.6%?


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## Aurelia (19 Apr 2017)

Because you get full prsi benefits and social welfare benefits and are resident in ireland. I am non resident and the contribuions entitle me only to a possible pension.


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## torblednam (19 Apr 2017)

Aurelia said:


> With regard to paying voluntary prsi contributions for pension purposes, has anyone else working abroad and paying voluntary prsi contributions been asked to declare their worldwide income this year as their yearly contribution cost is going to be 6.6percent of all their income instead of the usual flat rate of about 500. So say you earned 50000 abroad you would have to pay about thre or four thousand pounds instead of the usual flat rate. This is the first year i have been asked to pay this and when i rang the office they say the 6.6percent Fee on all income has always been in place. On the website it clearly says 6.6 percentof all reckonable income, reckonable meaning taxable irish income which is different from all worldwide income. Is this a change?
> In the uk if one is living abroad one pays 2.85 a week pension contribution which works out far less than the flat rate of about 500euro the irish used have to pay but we are used to being ripped off. But this takes the biscuit 6.6percent on all worldwide income which could work out at thousands of pounds yearly contribution for a pension which probably wont exist! Do the lawmakers have no shame.


Are you not talking about a voluntary payment though? In which case........


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## Steven Barrett (19 Apr 2017)

The UK pension is about half the Irish one. And that may not be paid either...


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## Gerry Canning (20 Apr 2017)

Merowig ,

Not wishing to depress you but our Government has already (stolen) from private pensions.

You have no choice but to trust the government that on retirement you can expect some fairness in how your savings/pension will be treated .

Things change and in 2 decades we have gone up and down and sideways and its hard to long-view things.
My opinion ,for what it is worth, is that everyone should save something in some way so as to not be 100% reliant on the State.


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## Gerry Canning (20 Apr 2017)

SBarrett said:


> The UK pension is about half the Irish one. And that may not be paid either...


UK pension for those with full contributory is £ 155 . ie less than ROI .
The Conservatives made a big play of linking it to inflation etc ,ie ensuring its real value over time , the voters bought into that promise.
It now looks that with Brexit/Austerity/demographics that that voter friendly promise will be revisited by Mrs May.

torblednam.
the £2.85 you mention was on old UK pension  system , I think its nearer £560 perannum now + severe changes to spouses pensions from 2016 .
It is quite complicated.
I also believe the 6.6% depending on your income could be a good investment , depending on your income and your age etc,.eg If you are close to pension and can get the full 230 per week for life it would make great sense to pay {thousands}
It is quite complicated.

The Pension very , very probably will exist .
There are changes afoot in UK and Ireland.


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