State Contributory Pension - transition to TCA from 2025

[Conan]

If anything, the Average method was more discrimatory - those with a long history in the PRSI system but with a gap in their record. The TCA is far more equitable,.in that you get a pension based on your numbers of contribution years. Phasing it in over 10 years is fair, but we had to get away from a system that could give a full pension after 10 years and yet might result in a lower pension for someone with say 30 years of contributions.
The move to the TCA was originally due to happen in 2021, but better late than never.

 

[joe sod]

The phasing out of the average contribution method, in my opinion, is going to save the taxpayer billions after 2035 due to the recent surge of immigration and massive future numbers of people with little more than 10 years contributions compared to historic averages

How much have they paid out already to those people qualifying with only 10 years contributions. I would say many are approaching retirement now so will still benefit considerably during the phase out period

 

[S class]

The averaging system has also been very advantageous to pre 95 public sector workers taking early retirement and gaining extra reckonable Prsi contributions up to age 66. This advantage has further improved since Jan 24. (Prsi age extended up to age 70.)

I have done very well from the system.

Lots of cases similar to mine are queried regularly on AAM and following advice these ex public sector workers will also be advantaged by averaging.

 

[DaveD]

The averaging system has also been very advantageous to pre 95 public sector workers taking early retirement and gaining extra reckonable Prsi contributions up to age 66. This advantage has further improved since Jan 24. (Prsi age extended up to age 70.)

I have done very well from the system.

Lots of cases similar to mine are queried regularly on AAM and following advice these ex public sector workers will also be advantaged by averaging.

This is interesting, could you elaborate?

I will soon be in a similar situation, a pre 95 public sector employee planning on early retirement at 60 in 4 years, paying Class D PRSI for 42 years. Then 10 years of Class S on pension payments I believe (but open to correction). Also have about 30 Class A "stamps" 40 years ago.

The transition from averaging to total contributions may throw a spanner in the works for me though (I will be 66 in Sept 2034). Although the few Class A stamps from teenage years are possibly more harm than good.

Maybe I'll get some state pension benefit at 70 from 10 years or PRSI Class S payments?

 

[S class]

Read this post to get further information.

Aim to get at least 1 class A paid contribution immediately after you retire to gain change of status credits for your retirement year and the previous year.

Key Post - PRSI and planning retirement

This Key Post is in the form of a FAQ where I don't know many of the answers. I will update the post as I get answers. 1. PRSI payable on reaching state pension age Answer: 0 (Class M) 1a. Does this relate to the start of the tax year in which you become 66? Or to after your birthday? Answer...

askaboutmoney.com

 

[ronaldo]

How much have they paid out already to those people qualifying with only 10 years contributions. I would say many are approaching retirement now so will still benefit considerably during the phase out period

It's true, many people are approaching retirement and will benefit from a partial consideration of their entitlement to state pension during the phase-out period.

My point is, taking a long term look at things and based upon the surge in immigration since 2022, there will be a similar surge in people eligible for state pension beginning 2032 (not before it because entitlement to state pension still requires at least 520 contributions). At that point, only 20% of the state pension will be calculated using the average method; dropping to 10% in 2033 and 0% in 2034.

This means, for example, should someone that arrived in Ireland 10 years ago decide to return home today; they will be entitled to a full state pension courtesy of the Irish tax payer. I realise there is risk of being called racist in making this comment, but I don't believe this to be fair (nor is it fair that an Irish person who emigrates to Australia at 16 and returns to work here 10 years prior to retirement should have entitlement to full Irish state pension).

Anyone arriving next year and staying 10 years before returning home will be entitled to 25% of the state pension in 2034 under the TCA approach; which is completely reasonable.

Someone who arrived as the surge of immigration began in 2022 will be entitled to 20% of the pension calculated under the TCA approach (20% of full state pension) plus 80% of the pension calculated under the TCA approach (10/40*0.8 = 20% of full state pension). This gives 40% of full state pension which is higher than what most would call reasonable but less likely to be detrimental to an already in trouble state pension system.

The reason I mention immigration isn't related in any way to racicm, it's merely an acknowledgment of the fact that the majority who retire without the bulk of the 2080 contributions for a full PRSI record either immigrate here or return after emigrating. It's also an acknowledgement of the fact that there is already talk of needs to increase retirement ages in the future so the system cannot cope with a surge in numbers entitled to full state pension beyond that which is already expected based on Irish demographics.

Entitlement to state pension based on 10 years (520) contributions will be:

2024 and before: €277.30 per week
2025: €256.50
2026: €235.70
2027: €214.90
2028: €194.11
2029: €173.31
2030: €152.51
2031: €131.71
2032: €110.90
2033: €90.12
2034 and later: €69.32

 

[joe sod]

But why was the average contributions system ever brought in in the first place, the people that are disadvantaged by it are actually the people that have a full 40 years prsi record, they get their entitlement but everyone else gets more than their entitlement. Why was it constructed in such a way to advantage some people over others rather than being scrupulously fair.

 

[Forumuser]

I said this before- but I am saying this again:

I believe that very very few people manage to get a pension based on starting to work here at the age of 56 and coming out at age 66 with 520 PRSI contributions and a full pension. This would mean that you never ever missed a single week's work or never got ill for at least one week. The older you get, the more are the chances to get sick. And 10 years are a long time- your job could be gone half way through this time frame- and if you are not able to find a job starting the next week after you end your first, your game is over!
Remember: You need 520 PRSI contributions. With even one contribution less (519) you end up with nothing!

This story about a full pension for only 520 contributions is a myth blown out of all proportions. I am sure the department has some statistics about this- but won't show them. It would not be very helpful in their reform effort.

 

[Forumuser]

But why was the average contributions system ever brought in in the first place, the people that are disadvantaged by it are actually the people that have a full 40 years prsi record, they get their entitlement but everyone else gets more than their entitlement. Why was it constructed in such a way to advantage some people over others rather than being scrupulously fair.

It was created in times of heavy emigration. Folks left and worked abroad for some weeks or months. They came back for the rest of the year. Same for folks here in Ireland- they had work on and off- depending on available work in what was mostly only agriculture. So they were short in some weeks- and the average system gave them some compensation.

 

[S class]

I reckon it was created to eliminate a chunk of employees from qualifing for a full contributory pension, thus saving money. The unintended consequences of this poorly thought out plan only became clear after its introduction.

 

[Lisgoold]

It's true, many people are approaching retirement and will benefit from a partial consideration of their entitlement to state pension during the phase-out period.

My point is, taking a long term look at things and based upon the surge in immigration since 2022, there will be a similar surge in people eligible for state pension beginning 2032 (not before it because entitlement to state pension still requires at least 520 contributions). At that point, only 20% of the state pension will be calculated using the average method; dropping to 10% in 2033 and 0% in 2034.



Entitlement to state pension based on 10 years (520) contributions will be:

2024 and before: €277.30 per week
2025: €256.50
2026: €235.70
2027: €214.90
2028: €194.11
2029: €173.31
2030: €152.51
2031: €131.71
2032: €110.90
2033: €90.12
2034 and later: €69.32

Just for clarity, those figures for 520 contributions,are only accurate if those 520 weeks are just after you've arrived here (or just started work), AND they are the last ten years before reaching the age of 66.

I can't imagine this happens very often.

 

[ronaldo]

I said this before- but I am saying this again:

I believe that very very few people manage to get a pension based on starting to work here at the age of 56 and coming out at age 66 with 520 PRSI contributions and a full pension. This would mean that you never ever missed a single week's work or never got ill for at least one week. The older you get, the more are the chances to get sick. And 10 years are a long time- your job could be gone half way through this time frame- and if you are not able to find a job starting the next week after you end your first, your game is over!
Remember: You need 520 PRSI contributions. With even one contribution less (519) you end up with nothing!

This story about a full pension for only 520 contributions is a myth blown out of all proportions. I am sure the department has some statistics about this- but won't show them. It would not be very helpful in their reform effort.

Many, many employees spend well beyond 10 years without missing a single PRSI contribution. Many have employers that continue pay for short term illness too.

Also, if one were to miss one contribution per year on average, it still entitles them to over 98% of the state pension based solely on the average approach.

Historically, Ireland has experienced emigration as opposed to immigration. The average approach would definitely become an issue in the future were immigration trends to continue.

 

[Forumuser]

Many, many employees spend well beyond 10 years without missing a single PRSI contribution. Many have employers that continue pay for short term illness too.

Also, if one were to miss one contribution per year on average, it still entitles them to over 98% of the state pension based solely on the average approach.

Historically, Ireland has experienced emigration as opposed to immigration. The average approach would definitely become an issue in the future were immigration trends to continue.

We are talking about a completely different cohort here- not the ordinary Joe Soap. We are talking about folks aged between 56 and 66. You seem to have no idea how cruel life can be to you at that age when it comes to health! You are flying in your twenties and thirties, some even in their forties and fifties. Many make a hard landing in their sixties!

No- it is not true that you you still get 98% of the pension when only a couple of PRSI contributions per year are missing. That is only true if you are looking at a much much longer working life. But if you start working at age 56 and end working at age 66, you MUST come out with 520 PRSI contributions in the end. With only one PRSI contribution missing you do not qualify and end up with nothing. To get a foothold in the contributory system you need 520 PRSI contributions as a minimum to get anything. So your window of opportunity is only 10 years- or exactly 520 weeks. Failure in just one week is not an option!
This is a huge huge hurdle to get over in your so called easy way to get a pension by just sneaking in at age 56! It is more a miracle to achieve such an undertaking! The odds are heavily against you. I fail to see a significant cohort of men or women who achieved securing a pension that way!

 

[ronaldo]

We are talking about a completely different cohort here- not the ordinary Joe Soap. We are talking about folks aged between 56 and 66. You seem to have no idea how cruel life can be to you at that age when it comes to health! You are flying in your twenties and thirties, some even in their forties and fifties. Many make a hard landing in their sixties!

No- it is not true that you you still get 98% of the pension when only a couple of PRSI contributions per year are missing. That is only true if you are looking at a much much longer working life. But if you start working at age 56 and end working at age 66, you MUST come out with 520 PRSI contributions in the end. With only one PRSI contribution missing you do not qualify and end up with nothing. To get a foothold in the contributory system you need 520 PRSI contributions as a minimum to get anything. So your window of opportunity is only 10 years- or exactly 520 weeks. Failure in just one week is not an option!
This is a huge huge hurdle to get over in your so called easy way to get a pension by just sneaking in at age 56! It is more a miracle to achieve such an undertaking! The odds are heavily against you. I fail to see a significant cohort of men or women who achieved securing a pension that way!

Start at age 55.5 work until age 66, miss one week per year, and you've got 536 contributions in 10.5 years. This entitles one to a little over 98% of the pension. This is where I refer to 98%.

Alternatively, start on your 56th birthday, realise on reaching 66 that you've been ill and missed 6 weeks of contributions and continue working until 66 years and 6 weeks old - under the average approach, you'd be entitled to 98.9% of state pension.

What you say is true - were the average approach to remain, it would not be possible to earn anything at all if they enter the system bang on the day of their 56th birthday, with only 520 weeks left until 66, if that person becomes ill for some time and refuses, or is unable to, delay retirement a few weeks beyond 66 to make up the 520 contributions. How many people fit into this cohort?

 

[Forumuser]

In theory that is all correct. But life or people work different.
Only a very small number of people will achieve what some think is very common.

I am prepared to change my mind if the department comes out with concrete facts and figures. Till then I consider the whole thing to be an urban legend, probably driven by plain old begrudgery.

 

[joe sod]

Historically, Ireland has experienced emigration as opposed to immigration. The average approach would definitely become an issue in the future were immigration trends to continue

historically is now the 70s 80s and 90s when we had high emmigration rates, most people would have worked for a few years in ireland before emmigrating, it is this demographic which is large that was highly disadvantaged by the average contributions approach, how it could be suggested that the average method was introduced to give these people a better pension doesn't stand up.

Also we have had high rates of immigration since 2004 when the EU was expanded to eastern europe, if you remember , ireland and UK opened up completely whereas germany , france etc maintained restrictions, therefore ireland was getting huge numbers of immigrants from these countries ( they built houses and fueled celtic tiger economy), a considerable number may benefit from the irish pension anomoly if they worked for 10 years or more and returned back home. However I accept that it would probably be by accident as they would not be aware of this until they apply at age 66. Also the people that arrived in 2004 would have largely been young in their 20s so would only be getting into their 40s and 50s now and the anomoly will be completely gone by the time they get to 66

 

[Marsupial]

historically is now the 70s 80s and 90s when we had high emigration rates, most people would have worked for a few years in Ireland before emigrating, it is this demographic which is large that was highly disadvantaged by the average contributions approach,

Only if they either went to a country that didn't have a social welfare agreement with Ireland or they didn't work at all after emigrating. Which would rather have defeated the point of emigrating in the first place!

 

[Marsupial]

If people genuinely want to understand how we got to where we are with the State Contributory Pension, then they should consider doing a bit of research rather than of simply plunging in at the deep end and imagining that "they're" out to get you! In a nutshell, "they're" not, rather they are belatedly, responding to the demographic changes and increases in life expectancy that have arisen over the past few decades.

Unfortunately, the pensions reform can was kicked down the road for well over a decade due to a combination of weak governments and populist opposition parties, so the recent changes are, I believe, too little, too protracted and too late.

So, if anyone is genuinely interested in discovering the context for the (belatedly introduced) recent changes to the SCP, then they would probably benefit by reading the Green Paper that was published by Martin Cullen, the then Minister for Social and Family Affairs (remember him?) back in 2007.

https://pensionsauthority.ie/wp-content/uploads/2023/06/green_paper_on_pensions.pdf

Martin Cullen's Press Release summarise the issues and is worth reading too; it may be 16 years old, but the demographic issues identified haven't gone away!

 

[Forumuser]

You posted that link before some weeks ago. Actually the whole thread is a bit of a deja-vu. But rightly so- it is a very important subject and concerns everybody sooner or later.

I doubt that the current reform will lead to stability. The amount of people looking for a pension will keep ballooning out of control. And the amount of people paying into the scheme will get less and less.
There is no way out- this thing will collapse, regardless of what is done.
You can fiddle around a bit to keep it afloat. Keep raising the PRSI contributions of the employers and employees. Which will lead to a reduction of disposable money on the consumers side- while at the same time the Irish employer will get more and more uncompetitive in relation to employers in other countries. Jobs and production will go elsewhere.
You can keep raising the age for drawing down the pension. It is 70 now- on a voluntary basis. I am sure it will be 70 on a regular basis for everyone by 2034. I am not so sure about the productivity of those folks. Only a small percentage will be in full time employment by that age. The rest will be stranded on disability, illness or any other scheme.
Many people will be probably short of the required 2080 contributions for the full pension by the age of 66/70. The average system would have secured them a full or nearly full pension. Now it will be the non contributory pension which will be the better pension for them. That means that you save money on the contributory scheme- but increase spending on various other schemes and the non contributory pension pot.
It is like robbing Peter to pay Paul. In an ever increasing way.

I think we have to think outside of the box and come up with a completely different financing system to secure every citizen a pension by a certain age. And a system which will not sooner or later bankrupt the state. Ireland is not alone with this problem- it concerns more and more countries.

 

[Marsupial]

I think we have to think outside of the box and come up with a completely different financing system to secure every citizen a pension by a certain age. And a system which will not sooner or later bankrupt the state. Ireland is not alone with this problem- it concerns more and more countries.

With respect, the "completely different financing system" can really only mean mean taking the pension money from the back pocket of the Minister for Social Welfare's suit rather than from their front pocket!

Realistically, the funds can come from only two sources, the individual or the State.


PS

Forumuser: You posted that link before some weeks ago. But rightly so- it is a very important subject and concerns everybody sooner or later.

Guilty as charged! But it's my pet topic; and how many people - apart from you - took any notice of it?