Total Contributions approach
The minister of Employment Affairs and Social Protection, Regina Doherty, announced a new method of calculating your State Pension (Contributory) entitlements. The main change is that the calculation is set to move to a Total Contribution approach. The full details of the new method had not been finalised but is expected to be implemented after a short public consultation.
- 40 years of social insurance PRSI contributions will entitle you to the full State Pension (Contributory).
- There will be Home Caring credits, subject to a maximum of 20 years of credits.
- The new arrangement will apply to anyone who has reached State Pension age since 1/9/2012. The good news is that initially someone will have the option to be accessed on the current “Yearly Averaging” calculation or the new Total Contributions method. They will get the higher of the two calculations.
- The changes are being introduced from 30th March 2018 but the department will need some time to update their systems before any applications can be accessed. They should be ready by Quarter 4 of 2018. However if someone is entitled to a higher payment it will be backdated to 30th March 2018.
- The Total Contributions Approach will apply to all new pensioners from 2020. At that stage they will stop giving the option of using the averaging calculation.
Total Contributions Approach explained:
Under the new Total Contributions Approach the total of a person’s social insurance PRSI contributions paid and credited will determine the level of State Pension (Contributory) that they receive. A person will need 40 years of PRSI contributions paid or credited in order to receive the full rate State Pension (Contributory). People with less than 40 years will receive a pro-rata fraction of the full rate. That is, people will receive 1/40th of the full rate state pension for each year of social insurance contributions
A person will need at least 520 social insurance PRSI contributions to qualify for any payment of the State Pension (Contributory), which is a requirement that applies currently.
Yearly Averaging explained:
In order to qualify for a State Pension (Contributory) you must be aged 66 and have enough Class A, E, F,G, H, N or S social insurance contributions.
You must have:
- paid social insurance contributions before age 56
- paid at least 520 social insurance contributions
- an average of at least 10 weeks contributions over the years since you first started to pay.
The yearly average is calculated by adding together the social insurance PRSI contributions paid and credited over a person’s working life. Then divide by the number of years from when a person first paid social insurance to the year before reaching state pension age.
Average weeks of PRSI Contributions per year. Rate per week (from 10 March 2017)
48 or over €238.30
The full rate State Pension (Contributory) is due to increase to €243.30 per week from 26 March 2018 with proportional increases for those on reduced rates.
Problems with the Yearly Averaging calculation:
It has been known for many years that the Yearly Averaging calculation means that a person’s rate of state pension is not linked to their total contributions. A person could work and make social insurance PRSI contributions for 10 years from age 56 to 66 and qualify for the full rate state pension (contributory). In contrast someone working and making social insurance PRSI contributions for a total of 30 years from age 25 would only qualify for 90% of the full rate. People with gaps in their social insurance PRSI contribution record can therefore be disadvantaged under the Yearly Averaging calculation.
For this reason the Dept. of Employment Affairs and Social Protection have for a number of years been considering moving to a Total Contribution Approach. Their view is that by 2020 the historical records of social insurance PRSI contribution (since its introduction in 1953) will be such that all people can be assessed on a Total Contribution Approach when they reach state pension age.
The previous expectation was that the move to a Total Contribution Approach would require a total of 30 years social insurance PRSI contributions, that is you would receive 1/30th of the full rate state pension for each year of social insurance contributions. The Total Contributions calculation announced now requires a total of 40 years social insurance contributions, that is receiving 1/40th of the full rate state pension for each year of social insurance contributions. A consultation will be carried out in early 2018 and so the final details are not yet known, but a 40 year total contribution requirement now looks more likely in order to receive the full rate State Pension (Contributory).
What are Home Caring Credited Contributions ?
Under the new Total Contributions calculation model, in addition to paid social insurance contributions, new Home Caring credited contributions will be available for periods of up to 20 years of homemaking and caring duties. Caring periods for children up to age 12, and for a person of any age who requires full time care and attention, may be included in this calculation. These are similar rules to the current Homemaker’s Scheme which allows that up to 20 years may be disregarded when the Yearly Averaging calculation is done.
Is there any other way to get Credited Contributions ?
Up to 10 years credited contributions are also available for other reasons, examples include credits while on social welfare illness benefit, maternity benefit, or for attending training courses with SOLAS (formerly FAS). There will be a cap of 20 years on the overall number of credited contributions that may be used in the Total Contributions Approach calculation.
State Pension Age
Year State Pension Age Year of Birth
2014-2020 66 1948 to 1954
2021-2027 67 1955 to 1960
2028 onwards 68 1961 or later