Struggling to understand our PRSI system.

T

theObserver

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I made an attempt this weekend to understand our PRSI system and how it relates to our state pensions.

My understanding
Ireland is current migrating towards a Total Contributions Approach (TCA) over the ten years under which we need minimum of 520 prsi contributions to quality for the contributory penions and a total of2,080 pension contributions (40 years of paying) for the full contributory state pension. The most PRSI contributions we can pay a years 52. PRSI is divided into separate classes but most people will fall underClass A which that is what I will concentrate on.

We cannot pay PRSI past the age of 66. If we reach pension age without the full 2080 contributions needed for the full state contributory pensions, the follow calculations are used to determine our pension(we can also apply for the means tested non-contributory pension):-




Credited Contributions
Outside of working and the PAYE system, we also gain Credited Contributions through the social welfare system either via the non-means tested Jobseeker Benefit or the means tested Jobseekers Allowance. It isalso possible to signon for credits only (no payment) via the Jobseekers Allowance. The number of reckonable credit contributions is capped at 520

Question: Why? It makes no sense to me. I wrongly assumed credit contributions would count against my total reckonable contributions as I was consuming my prsi by drawing welfare. Only, instead, welfare is granting them to me.

If I pay PRSI on "unearned" incoming over 5k, they grant me class K which are junk. If I draw welfare I get class A which counts towards apension. I must be missing something.

Voluntary contributions

We can also make voluntary contributions providing we have a minimum of 520 PRSI contributions.



Question: What does the third condition mean? Agree to pay from the start of the contribuation week following the week in which you leave complusory insurance? If I am forced to sign on Welfare for two years, during which I get Credited Contribuations, and then want to pay voluntary contribuations, do I need to pay from the week I stopped working to the current date? I dont know what a "contribuation week" means in this context!



Question: What is considered reckonable income? If I sold shares the previous year and paid my exit tax, is my reckonable income the net gain? Or is it the full amount from selling (including my orginal capital used to buy the shares).

Thanks to anyone who managed to read this far !
 
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Just some remarks:

We can work past age 66 now- and keep collecting PRSI contributions under the condition that we don't start drawing down the contributory pension but defer it. You can now collect PRSI contributions up to the age of 70. This increases your pension entitlements- or brings some folks over the 520 PRSI level.

The amount of SW credits was capped at 520 to save money. Some folks collect a lot of credits over their lifetime. Someone on DA could easily clock up decades of them- and get a full or near full pension in the end, provided s/he has the 520 contributions.
 

A person who has been admitted as a voluntary contributor can choose the point in time from where they decide to pay voluntary contributions, as follows:
  • a person can elect to pay voluntary contributions from the week immediately after they last paid a compulsory PRSI contribution as an employed or self-employed contributor
  • OR
  • a person can elect to pay voluntary contributions from the commencement of any subsequent contribution year of their choice, within the time period covered by their admittance
  • For example, if a person was being given the option of paying voluntary contributions going back 60 months (5 years), she or he can opt against paying voluntary contributions over the first 2 years of that admittance period, in favour of paying over the last 3 full years of that period and so on.

You can sign on for credits for as long as you want after ceasing employment.
You can begin voluntary contributions at the start of any year after ceasing employment.

If you delay begining voluntary contributions beyond 5 years from ceasing employment, you would need at least one new paid class A contribution.

You can continue signing on for class A credits while simultaneously making voluntary contributions. There are advantages in having credits and voluntary contributions.

Credits allow you to qualify for treatment benefits and are usefull to assist in qualifing for Benefit Payment 65.

Voluntary contributions can be made up to the last complete tax year before your 66th birthday.

Credits can be claimed up to your 66th birthday.
 
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theObserver said:
Question: What is considered reckonable income? If I sold shares the previous year and paid my exit tax, is my reckonable income the net gain? Or is it the full amount from selling (including my orginal capital used to buy the shares).
Click to expand...
Reckonable income would be the total income which was subject to Prsi.
If you are paying voluntary contributions based on class A , it would be your total income for which class A applied.

This could include earned income, share dividends and deposit interest.
There is no Prsi charged on exit tax. I don't think Prsi is applied to capital gains.
It doesn't include your original capital when you sell shares.
 

>>There are advantages in having credits and voluntary contributions.

Are we still capped at 52 contributions a year if we have both credit and voluntary the same tax year?
 
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