Understanding the new mode of access to state pensions

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I have a question regarding the new approach to total contributions for Calculation of the state pension. How exactly will it work? I understand that it will be based on the total accredited contribution but how can I get an idea of ​​how much you will get if you don’t have 40 years of contribution?

Will there be a range of rates as for the annual average rule?

Mr DS, e-mail

The government has been talking for over a decade about changing the way we are entitled to the state pension. For reasons I just can’t explain, they haven’t done it completely yet, although they have introduced the concept of assessing pension eligibility based on the total number of contributions you pay. during a working life in 2018.

The position, as of now, is that there are two systems – the “old” annual average approach and the newer, total contributions, one.

Under the old system, you are measured by the average number of PRSI contributions you have from the time you started working until you reached retirement age. You must have a minimum of 10 years of contributions (520 weekly payments).

If you fail, as you say, there are rate brackets to determine the payment you receive. With an average of 48 stamps or more per year, you benefit from the maximum price of 248.30 €. This decreases by € 5 per week for anyone with an average of 40 to 47 stamps per year.

The amount is lowered by installments then for any person having an average in their thirties, in their twenties, between 15 and 19 and, finally, between 10 and 14 contributions per year where you will receive approximately 40% of the totality of the payment.

The winners of this system are people who started working in Ireland later in life – ideally only 10 years before retirement age, where they would be entitled to a full pension despite barely meeting the criteria. minimum.

People who started working early in life but then took time out of the workforce – especially women to raise families – suffered.

You can still claim a pension this way. The government was ultimately supposed to have made this approach history last year, but like so many things, it has yet to happen.

Total contributions approach

The plan called for the Total Contribution Approach (TCA) to become the only way to assess pension eligibility – but the government reserved the right to change the rules from those in place on a “basis.” temporary ”since 2018 to ease the position of many people whose pensions were hit hard by the changes in 2012.

For anyone who retired after the end of August 2012, they will be assessed according to the above annual spreading system as well as the new TCA, and they will receive a pension on the basis of the system which is most advantageous to them.

The TCA approach doesn’t care when you started working. This student job will not come back to haunt you. As currently stated, its only concern is whether you have 40 full years of contributions – 2,080 weekly contributions – by the time you reach retirement age, currently 66. Only approach, but we don’t know yet.

TCA allows more leeway for breaks with the world of work. For example, you can use up to 10 years credited, for example covering periods when you might be unemployed and claim unemployment benefits.

Most importantly – especially, but not exclusively – for women, you can claim up to 20 years of credits for any time you’ve taken out of your job to look after a family under the age full-time. 12 years old, or to take care of a full-time elderly person who is unable to fend for themselves.

You can also mix and match the credits under these two headings. So you could have 12 years to look after your child and five more years of credits while you are receiving unemployment benefits, giving you a total of 17 years of credits.

There is a limit, however. You cannot claim 30 years of credits and only provide 10 years of work payments. The maximum number of credits that can be used to reach the 40-year objective is 20 years, regardless of the category in which they are located.

Pro-rated pension

When it comes to bands, I can see why this might be a problem as it has never been described in relation to the total contributions approach – and that’s because they don’t exist as part of the TCA.

Instead, a simple pro-rata arrangement will come into play if you don’t have the full 40 years of contributions. Infuriatingly, all Revenue Commissioner and Department of Social Protection scenarios assume that you will have full years of credits or contributions paid, but many people do not.

To determine your rights based on the rules in force, all you have to do is divide your number of contributions by 2,080. So if you have 20 years of contributions paid, that will amount to 1,040 contributions (52 x 20). Dividing 1,040 by 2,080, you get 0.5, so you get half board – that’s € 124.15 at today’s rate.

As you can see, this will almost certainly leave you worse off than under the current scheme where, even with an annual average of just over 15, you get paid € 161.80. An average of 15, for comparison, represents just over 11½ years of PRSI stamps over a 40-year lifespan.

If you worked a little over 24 years, say 1,260 contributions, and received unemployment benefits for, say, 20 months (34 credits) and then sickness benefits for a year (52 credits), you would have a total of 1,346 contributions. Dividing this number by 2080 gives you an indexing factor of 0.647.

By multiplying the maximum pension amount (€ 248.30) by 0.647, you get € 160.65, and this is what you will receive as a weekly pension.

Open to change

However, as I indicated above, it is quite possible that politicians will change the rules before making the ATT approach applicable to all workers. For example, they might decide that you only need 30 years (1,560) of contributions for a full pension, or 35 (1,820).

This is largely a political issue and, as successive governments have shown, Irish pensions are a deeply political issue.

This number would then become the one by which you divide your own number of contributions. Obviously, any decision to lower the threshold for a full 40 year pension would increase the amount of pension a person would receive under the pro rata arrangement.

Please send questions to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email [email protected] This column is a reading service and is not intended to replace professional advice. No personal correspondence will be exchanged


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