Will the gap in my PRSI contributions adversely affect my state pension?

suzywong

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Hi, I’ve looked on this forum but can’t find the answer to my question. I am concerned about having enough PRSI contributions to get the full (or almost full) contributory state pension at 68. I’m 57 now and took cost neutral early retirement in January 2019 having worked since 1980. My current income is comprised of an occupational pension (not liable for PRSI) and rental income (liable for PRSI but doesn’t count towards state pension). I do not intend to engage in any other paid work (which would serve to increase my PRSI contributions) before official retirement at 68.

My PRSI contribution history runs from 1980 to 2019, and is as follows, starting with most recent. All my PRSI contributions were paid at class A:

2019 - 9 months on Jobseekers Benefit (40 credited contributions)

1991-2018 inclusive (29 years) employment in public service @ 52 class A contributions per year (1,508 paid contributions)

1980-1989 (172 contributions, comprised of a mixture of paid and credited)
Grand total class A PRSI contributions =1,720

However, I have a contribution gap between 1885 and 1987, when I was a full-time student and paid no contributions.
I realise the pension rules will probably change, but based on the current situation my question is:
Will I get a full (or almost full) pension at 68 based on my existing contributions, or will I be penalised for the gap back in the 1980s?

If it operates against me, I may consider voluntary contributions but they are very expensive and my means are quite limited.
Many thanks for any response to this.
 
you'd need to ask the DEASP to be certain but my reading of it (as I was looking into it recently) is that you can currently qualify using either an average contribution calculation or a total contributions calculation. Whichever gives you the higher pension rate will be used (theres some suggestion the Total Contributions method may become the only option in the future).

First off you need a minimum of 520 contributions - you have this.

For the average contributions calculation you take your total and divide it by the number of years you were "in the workforce" - i.e. pension year minus the year you started. I don't know if they will use age 66 or age 68 for this in the future, but it doesn't make any difference for you, either way you fall into the 30-39 average band for a pension of €223 per week (bands are listed here)

For the Total Contributions calculation, they base it on 40 years of full contributions (40x52=2080 total) - whatever proportion of this you have, that's the proportion of the full pension you get. 1720 stamps give you 82% of the full pension or €205.

If you spent any time out of the workforce looking after children, this can be taken into account in both methods...

So at the moment you do better under the average contributions method, but TBH no one knows what the requirements will be in 11 years.

re: annual voluntary contributions, my reading of this is that they're counted as 52 extra stamps. Under the Total Contributions method, this would give you about €300 extra a year on your pension. The minimum voluntary contribution is €500 so provided you plan to live for at least 2 years after retirement age, they're probably worth doing, but only you can decide whether the money is more useful to you now, or in 11 years..
 
Based on your post, I assume you were born c1963. If you started paying PRSI in 1980, then under the current rules, your record will run until you reach the State Pension Age (perhaps age 68 in your case, so c2031). If so, then your potential record will be 1980 to 2031, so 51 years.
under the current State Pension model calculation system, your State Pension is based on your “average contribution pa” over your PRSI history. So in your case it would be :
1720/51= 33.7.
But you need an average of 48 weeks to get the full State Pension. With an average of 33.7 you would currently get a 90% pension (so €223.20 currently).
However it was the intention of the Department (previous Government) to move from the “average “ calculation to a “Total Contribution Approach” whereby you need 40 years contributions (2080) to get the full Pension. If that were adopted, then your current record (1720) would get you 33/40ths of a Pension - c€205.
But any change to the calculation model has been deferred, so it’s impossible to know if or when a change might be made.
one other point, why are you not signing- on for Credits after your Jobseeks ran out? This would improve your record.
 
1980-1989 (172 contributions, comprised of a mixture of paid and credited)

However, I have a contribution gap between 1885 and 1987, when I was a full-time student and paid no contributions.

Are you sure this is correct? If you are just missing 2 years during this period why are there only 172 contributions in all , paid or credited?
 
you'd need to ask the DEASP to be certain but my reading of it (as I was looking into it recently) is that you can currently qualify using either an average contribution calculation or a total contributions calculation. Whichever gives you the higher pension rate will be used (theres some suggestion the Total Contributions method may become the only option in the future).

First off you need a minimum of 520 contributions - you have this.

For the average contributions calculation you take your total and divide it by the number of years you were "in the workforce" - i.e. pension year minus the year you started. I don't know if they will use age 66 or age 68 for this in the future, but it doesn't make any difference for you, either way you fall into the 30-39 average band for a pension of €223 per week (bands are listed here)

For the Total Contributions calculation, they base it on 40 years of full contributions (40x52=2080 total) - whatever proportion of this you have, that's the proportion of the full pension you get. 1720 stamps give you 82% of the full pension or €205.

If you spent any time out of the workforce looking after children, this can be taken into account in both methods...

So at the moment you do better under the average contributions method, but TBH no one knows what the requirements will be in 11 years.

re: annual voluntary contributions, my reading of this is that they're counted as 52 extra stamps. Under the Total Contributions method, this would give you about €300 extra a year on your pension. The minimum voluntary contribution is €500 so provided you plan to live for at least 2 years after retirement age, they're probably worth doing, but only you can decide whether the money is more useful to you now, or in 11 years..

Thank you so much. I rang DEASP and they would not handle an individual query. I also enquired from the voluntary contributions section about paying for additional contributions and they quoted me 1,200 euros just to pay for 12 missing stamps in 2019! This is because the rate is based on my previous years salary of 78K. Your reply has been very helpful.
 
Based on your post, I assume you were born c1963. If you started paying PRSI in 1980, then under the current rules, your record will run until you reach the State Pension Age (perhaps age 68 in your case, so c2031). If so, then your potential record will be 1980 to 2031, so 51 years.
under the current State Pension model calculation system, your State Pension is based on your “average contribution pa” over your PRSI history. So in your case it would be :
1720/51= 33.7.
But you need an average of 48 weeks to get the full State Pension. With an average of 33.7 you would currently get a 90% pension (so €223.20 currently).
However it was the intention of the Department (previous Government) to move from the “average “ calculation to a “Total Contribution Approach” whereby you need 40 years contributions (2080) to get the full Pension. If that were adopted, then your current record (1720) would get you 33/40ths of a Pension - c€205.
But any change to the calculation model has been deferred, so it’s impossible to know if or when a change might be made.
one other point, why are you not signing- on for Credits after your Jobseeks ran out? This would improve your record.
Many thanks. Yes I was born in 1963. On Friday I rang and asked about signing on for credits and was told I need to be looking for work in order to do that. I'm not looking for work so I can't!
 
Many thanks. Yes I was born in 1963. On Friday I rang and asked about signing on for credits and was told I need to be looking for work in order to do that. I'm not looking for work so I can't!

You signed on for Jobseekers Benefit when you retired. Are you in any different place as regards looking for work now versus then? Were you given the opportunity to remain signing on for Credits when your Benefit claim expired?

My current income is comprised of an occupational pension (not liable for PRSI) and rental income (liable for PRSI but doesn’t count towards state pension).

Are you sure about that. I believe Class S does count towards State Pension but you need to pay a minimum of €500 pa. If your PRSI on rental income is less than this you may be able to top it up voluntarily.
 
Could it be the case that the OP's rental income is levied PRSI under Class K, and not Class S?

Could be, and Class K confers no benefits:

  • From 1 January 2014, employed contributors and occupational pensioners aged under 66 years whose only additional income is unearned may be liable for PRSI contributions on this income.


Maybe OP can confirm which class she pays.
 
Class K
  • From 1 January 2014, employed contributors and occupational pensioners aged under 66 years whose only additional income is unearned may be liable for PRSI contributions on this income.
 
Also, why weren't these contributions at Class B, C or D? Correct me if I'm wrong, but I thought all pre-95 public servants paid one of those rates.

I don't know about this poster, but all public servants were not on the modified rate pre-1995. Most were, but some paid Class A. All those working for Section 38 providers paid Class A. And I suspect some non-permanent people on other sectors did so also.
 
You signed on for Jobseekers Benefit when you retired. Are you in any different place as regards looking for work now versus then? Were you given the opportunity to remain signing on for Credits when your Benefit claim expired?



Are you sure about that. I believe Class S does count towards State Pension but you need to pay a minimum of €500 pa. If your PRSI on rental income is less than this you may be able to top it up voluntarily.
Yes I signed on jobseekers for 9 months and I was looking for work. At that point I inherited my mums apartment and began earning rental income from that. I did not need to look for work after that as it supplemented my occupational pension. I am not entitled sign on for credits as I'm no longer seeking work. I will pay PRSI class K on this unearned rental income which does not entitle me to anything and is more like a levy.
 
Also, why weren't these contributions at Class B, C or D? Correct me if I'm wrong, but I thought all pre-95 public servants paid one of those rates.
I have my PRSI record printed and all the early contributions are class A. I worked in various part time settings (not in the public service) while I was in school and as a student.
 
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