Will policy on Class S PRSI on unearned income change in future?

[Dr Strangelove]

As of 2014 Class S PRSI is charged on all “unearned income” at a rate of 4% or €500, whichever is higher. Unearned income mainly consists of profits from rental properties, deposit interest, and dividends on investments.

This probably raises a lot of PRSI from rich people but it also allows out-of-work people who only have a small amount unearned income to build up a state pension entitlement. How?

Basically an adult who does not work and has as little as €5,000 in annual unearned income will pay just €500 per annum in Class S PRSI and build up an entitlement to a contributory state pension at 66 worth €13,000 a year.

This seems very generous, and has the wrong set of incentives: don’t work but still get a contributory state pension like someone who does.

Is policy likely to change on this?

If so, how are rules likely to be tightened?

I started a new thread on this as it was triggered by this money makeover discussion https://www.askaboutmoney.com/threads/58-early-retirement-multiple-questions.236451/

 

[elcato]

The PRSI was supposed to be amalgamated to a catch with health levy and others as the new USC. When the senior civil servants realised they didn't pay PRSI they decided, hang on, let's charge it was well to the peasants. They then decided that 'unearned rental income' should be subjected to PRSI as once again it didn't affect them. They don't think of the consequences of their action until years later. This is just further sticky taping the state pension mess we have atm.
In answer to your question though, unless the Brains before People or the Shiners bring it up in the Dail and it causes enough stink they will leave well alone.

 

[Towger]

Another issue is rate for Class S at 4% is too low for the benefits given. However, the government does not have the 'will' to increase it.

 

[Sarenco]

I don’t really have an issue with somebody getting 52 Class S stamps for a €500 contribution.

After all, a voluntary contribution of €500 would similarly qualify for stamps.

What I find odd is that somebody can apparently get 52 Class S stamps while paying PRSI of less than €500 on drawdowns from an ARF.

At least that’s my understanding of current practice.

 

[Dr Strangelove]

What I find odd is that somebody can apparently get 52 Class S stamps while paying PRSI of less than €500 on drawdowns from an ARF.

This indeed is a glitch that some AAM users have found and doesn’t appear in DSP or Revenue guidance.

I don’t really have an issue with somebody getting 52 Class S stamps for a €500 contribution.

I find it to be an odd policy choice . I think that equivalent income from paid employment or self-employment should be rewarded more than passive investment income.

 

[Marsupial]

The PRSI was supposed to be amalgamated to a catch with health levy and others as the new USC. When the senior civil servants realised they didn't pay PRSI they decided, hang on, let's charge it was well to the peasants.

What a load of utter hogwash! This former senior Civil Servant paid PRSI for 38 years. Presumably what you intended to write was that all grades of Civil Servants (irrespective of seniority, juniority, or whatever you're having yourself) used to pay a reduced Class of PRSI.

But this was abolished in April 1995, a full 16 years before the introduction of the USC!

 

[Sarenco]

I think that equivalent income from paid employment or self-employment should be rewarded more than passive investment income.

Well, I think it’s odd that Pay Related Social Insurance is ever applied to unearned income but that’s an argument for another day.

Clearly, PRSI on ARF drawdowns relate to earned income (albeit that the contributions have already been subject to PRSI).

 

[Marsupial]

What I find odd is that somebody can apparently get 52 Class S stamps while paying PRSI of less than €500 on drawdowns from an ARF.

At least that’s my understanding of current practice.

It appears to be a practice that flies directly in the face of Departmental policy!

As I have written before, I became aware of only when I was phoned by a helpful person in the Department who advised me that there was no need for me to apply to 'top up' my annual Class S contribution as my record would show 52 weeks' contributions even if I didn't. However, I decided to go by the book, just in case a subsequent audit identified my underpayment and left me without enough contributions.

 

[S class]

As an ARF is a pension product it should be treated in the same manner as an occupational pension.

It is unfair to charge certain ARF pensioners 4% Prsi on their retirement income and apply zero rated class M to occupational pensions.

While certain ARF holders do benefit from gaining class S contributions as they are short of the full 2040 contributions, the majority of ARF holders with 2040 contributions are unfairly treated.

This unfair situation has worsened since the start of 2024.
Before this an ARF holder over 66 changed to zero rated class M.
Now an ARF holder who does not qualify for the state pension at age 66 continues to be liable to 4% class S up to age 70.

There is also the unfair situation where many people in receipt of unearned income are subject to 4% class K Prsi on their unearned income. Some of these people are short of the full 2040 contributions and are paying large amounts of Prsi without any reckonable state pension benefits.

My guess is that the government is doing very well overall from these convoluted rules.
Some ARF holders gain an advantage, but probably the vast majority do not.

 

[S class]

It appears to be a practice that flies directly in the face of Departmental policy!

It's another built it complication.

Any ARF holder with an annual drawdown of less than 12500 euro per year would be facing an end of year Prsi bill if the 500 euro minimum was applied to their ARF.

Because Prsi is collected under the PAYE system from ARFs there would be a shortfall in prsi payments for drawdowns of 12500 euro or less.

While the ARF holder who is short of 2040 contributions would be happy to pay this end of year prsi bill, the ARF holder with 2040 or more contributions would probably be very irate with the government.

They might even be driven to vote for Sinn Fein.

 

[fistophobia]

I take issue with the term "unearned income".
Anyone who has been a landlord, has experience that managing and renting out property is far from being a passive investment.
Why dont Revenue refer to Jobseekers Allowance as Unearned Income. That would be more accurate.

 

[S class]

If you are exclusively a landlord the government will reward you with 52 class S contributions on your rental income, if over 5000 euro per year.

If you have the brass neck to have PAYE employment and be a landlord they will charge you 4% of your rental income for 52 worthless class K contributions.

 

[Flybytheseat]

They might even be driven to vote for Sinn Fein.

Surely anybody over the age of 50 or with a mental age above 3 wouldn't vote for the Shinners !

 

[elcato]

But this was abolished in April 1995, a full 16 years before the introduction of the USC!

I was referring solely to the senior civil servants who are involved in these decisions. I'd be confident that they have been in their job since before 1995 move to class A.

 

[Dr Strangelove]

I'd be confident that they have been in their job since before 1995 move to class A.

You’re mainly wrong.

Many post-95 civil servants were in senior leadership positions already by the 2009-2014 austerity era.

The PRSI was supposed to be amalgamated to a catch with health levy and others as the new USC

That’s completely wrong.

USC was designed to replace the health levy and income levy albeit at higher rates. The USC base is materially different from the PRSI base and there was never any intention to merge them.