Keeping up PRSI contributions for state pension while drawing private pension

Hi All

I wonder if you can help with a pension query.

I intend to stop working / retire at the age of 65 in a few years, however, I will not be eligible for the state pension until I am 68. (I know that the increase in pension age has been postponed by the current government, but it may revert to 68 over the next few years).

If I stop working at 65, how can I keep up my PRSI contributions to increase the value of the state pension that I will receive. At the moment I am short quite a few credits to allow me to receive the maximum pension.

If I draw down my occupational pension at 65, will I pay PRSI on the pension income until I am eligible for the state pension, or does PRSI not apply to private pensions at age 65?

If not, can I make voluntary contributions? I pay Class A contributions at the moment. Will I still have to pay the same value of contribution when I retire, as I did during my last year of employment? If so, it would not make much economic sense to make the voluntary contributions.

Is there a way for me to contribute at a lower (Class S) rate?

Many thanks in advance.
LT

One stops paying PRSI when one reaches 66 years of age.

If you take payments from your Occupational Pension Scheme, these are liable to PRSI at class S, at 4%, (treated as “Investment Income”), but PRSI does not apply, once you reach 66, Class S contributions, do count towards Contributory State Pension entitlement, in the same way as full rate Class A1 PRSI

There are i understand options to buy PRSI credits, some information here, but you should explore, with the Department Of Social Protection. You should request a statement of PRSI contributions first, this can be done on My Welfare, with My Gov ID.

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If you took a break from employment, to look after your children, there are options for getting PRSI credits for these period. Info here:

Have you considered applying for Jobseekers Benefit @ 65? to bridge the gap between any work retirement age and state pension and to continue getting PRSI credits

Hi All

Thanks for your replies.

If I retire at 65, would I be able to apply for Job Seekers Benefit as technically I would not be available for work?

If not, it would be great if i could sign on for credits only until I reach state pension retirement age.

If I had to pay voluntary contributions, do you have any idea on whether the rate of PRSI would be applied to my previous years' (relatively high) income or my retirement (relatively low) income. I think that the rate / percentage remains the same.

Many thanks

LT

i strongly suggest you contact the DSP for clarification of the correct & accurate information, as specific situations, can be different.

Under current rules, if you retire at 65 you can claim Jobseekers Benefit for 12 months without having to be available for work. And you get credits added to your record.

fayf said:

If you take payments from your Occupational Pension Scheme, these are liable to PRSI at class S, at 4%, (treated as “Investment Income”), but PRSI does not apply, once you reach 66, Class S contributions, do count towards Contributory State Pension entitlement, in the same way as full rate Class A1 PRSI

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This only applies if you set up an Approved (Minimum) Retirement Fund (ARF and/or AMRF) when you retire and draw your income from that. Annuity payments are not subject to PRSI.

LDFerguson said:

This only applies if you set up an Approved (Minimum) Retirement Fund (ARF and/or AMRF) when you retire and draw your income from that. Annuity payments are not subject to PRSI.

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I had assumed an ARF withdrawal, i actually don’t know anyone, who goes with the annuity option, as the payouts %’s are so low, and when you trigger an annuity, you are forever locked in, and it offers none of the flexibility of an ARF. It must surely be a tiny percentage of people with DC schemes, who opt for an annuity ?

As an aside is the state pension amount added to your occupational pension after 66/67 or in my case 68 or is the state pension amount deducted from your occupational pension until 68. I am a Class A contributor so have a coordinated pension.

For DC members,
they get whatever state contributory pension they are entitled to, (insurable weeks during working life dependant)and draw from their ARF, whatever they choose. You pay tax on the combined amount. No USC is due on the state contributory pension payment.

For State DB members:
DB from state employments, are generally different and more complex, in some cases they are not entitled to the state contributory pension as their PRSI class, means they don’t qualify, however typically, these cases generally give an employee with full max service, upwards of 50 % of final pay guaranteed for the rest of their lives, plus a spouse provision after their deaths.

Marco 1972 said:

As an aside is the state pension amount added to your occupational pension after 66/67 or in my case 68 or is the state pension amount deducted from your occupational pension until 68. I am a Class A contributor so have a coordinated pension.

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If you are a Class A contributor, then you are entitled to a State Pension based on your PRSI record. It’s paid in addition to any Occupational Pension. However if you are in an “integrated “ or “coordinated” scheme, then the pension calculation in that scheme takes into account the State Pension. The complication which might exist is that the State Pension might not start until 66, 67 or 68 (depending on your current age) but your reduced Occupational Pension might start at age 65 (depending on your particular Scheme). So you might have a gap in your total pension between 65 and when you qualify for the State Pension.

You should request your PRSI record to see what your current yearly average PRSI contribution has been to see if making additional contributions will move you to next band.



State Pension (Contributory) rates 2020 for people who qualified on or after 1 September 2012

fayf said:

I had assumed an ARF withdrawal, i actually don’t know anyone, who goes with the annuity option, as the payouts %’s are so low, and when you trigger an annuity, you are forever locked in, and it offers none of the flexibility of an ARF. It must surely be a tiny percentage of people with DC schemes, who opt for an annuity ?

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Yes the ARF route is certainly far more popular than the annuity. I've only arranged a couple of annuities this year. Both were people who considered the pros and cons of ARF vs annuity and decided that they wanted the certainty of guaranteed, fixed income for life. As it happens, in both cases, the fund in question was only a minority part of a bigger pot of assets making up the total retirement income.

If the "salary and service" method of calculating the lump sum gives a significantly larger lump sum than 25% of the fund, then some people consider that taking the annuity with the balance is worthwhile.

I've also seen older people who had an ARF for some years convert the balance of the ARF fund into an annuity having availed of the ARF flexibility for as long as they wanted it.

But these are mostly niche examples. The majority of people I talk to end up going for the ARF option.