The more flexible contributory state pension. Is it a good deal ?

[Des Pondent]

I don't think it is for me anyway.

I intend to retire at 65 and get the 65 year old payment for the first year and for the following years I will get the full state contributory pension, that is worth €70,000 up until I am 70.

If I defer claiming my state pension and work until 70 my contributory pension will only be worth €60 more weekly, so it would take over 22 years at €60 weekly to get that €70,000 back. I would be 92 years old, way beyond the average male life expectancy.

It might benefit someone who does not have enough stamps to qualify for a full contributory pension.

Even if I could not afford to retire or just wanted to continue working, I think I would be better off claiming my contributory pension at 66 while I worked rather than deferring the claim.

Deferring claiming at 66 doesn't look like a good deal for those who qualify for a full contributory pension at that age and can afford to retire, or am I missing something ?

https://www.gov.ie/en/publication/d8fd8-flexible-pension-options/

 

[callybags]

If you claim the state pension at 66, and continue working, will you pay tax, PRSI and USC at your marginal rate ?

You would need to take that into account when calculating the payback if you were to defer.

I'm making an assumption that you would pay no tax on the pension if not working.

 

[jfrank]

If you claim the state pension at 66, and continue working, will you pay tax, PRSI and USC at your marginal rate ?

You would need to take that into account when calculating the payback if you were to defer.

I'm making an assumption that you would pay no tax on the pension if not working.

No PRSI when you're over 65??

 

[callybags]

No PRSI when you're over 65??

As far as I'm aware from 01st January 2024 the age for PRSI exemption in increasing from 66 to 70.

Changes to Pay Related Social Insurance (PRSI)

Learn about changes to Pay Related Social Insurance for those born after 1 January 1958. The upper age limit for PRSI exemption is changing from 66 to 70.

www.gov.ie

 

[Marsupial]

Irish Times article [Fiona Reddan] yesterday (behind paywall).

Conclusion:

Ultimately, for those who qualify for a full pension at 66, it might come down to whether or not you think you’ll live long enough to benefit in full from it. Some people have criticised the rates of payment, arguing that you’d have to live to at least 86 in order to enjoy the full benefit of deferring your pension. However, if you are going to keep working, tax will eat into your payments, which can affect this calculation.

“You’re taking a bet against your own longevity .... The later you retire, the less time on average you would expect to have to collect the pension.”

Retire at 67 for a higher pension? New regime begins in January

Whether you are continuing to work, your overall income, the rate at which you pay tax and your health are all factors that you need to consider

www.irishtimes.com

 

[messyleo]

How does it work for those on the integrated public service pension if they stay later than 66? Does the pension get higher to reflect the higher contributory pension

 

[Marsupial]

If you claim the state pension at 66, and continue working, will you pay tax, PRSI and USC at your marginal rate ?

Income tax? Yes.

USC: on wages, yes; but not on State Pension.

PRSI: That depends! See the following: https://www.gov.ie/en/publication/70400-changes-to-pay-related-social-insurance-prsi/

From 1 January 2024, employers will need to know whether their employee, who is aged between 66 and 70 and born after 1 January 1958, has been awarded the State Pension (Contributory) to assign the appropriate PRSI class.
Therefore, employers will need to confirm with any of their employees who are aged between 66 and 70 and born after 1 January 1958, whether they have been awarded the State Pension (Contributory). When a person is awarded the State Pension (Contributory) the letter from the Department of Social Protection advises them that if they continue to work after being awarded their State Pension (Contributory) it is important to inform their employer they are in receipt of State Pension (Contributory) to ensure they do not pay PRSI.

 

[Dave Vanian]

PRSI: That depends! See the following: https://www.gov.ie/en/publication/70400-changes-to-pay-related-social-insurance-prsi/

That's interesting. Someone who continues to work after 66 and NOT draw down their State Contributory Pension continues to pay PRSI. I assume this is to enable someone who is falling a year or two short on their PRSI record to make it up to a full pension. But it's a bit unfair to someone who chooses to continue to work after 66 and NOT draw down their State Contributory Pension because they want to get the increased amount, i.e. someone who already has 40 years' PRSI by age 66.

 

[irbx]

That's interesting. Someone who continues to work after 66 and NOT draw down their State Contributory Pension continues to pay PRSI. I assume this is to enable someone who is falling a year or two short on their PRSI record to make it up to a full pension. But it's a bit unfair to someone who chooses to continue to work after 66 and NOT draw down their State Contributory Pension because they want to get the increased amount, i.e. someone who already has 40 years' PRSI by age 66.

It's moving from 1st January 2025 over 10 years to the new Total contribution model. Were after that ever single prsi week counts to the percentage of the full pension. Need 2080 for full amount and only 520 can be credited contributions used for the equation.

 

[Dave Vanian]

It's moving from 1st January 2025 over 10 years to the new Total contribution model. Were after that ever single prsi week counts to the percentage of the full pension. Need 2080 for full amount and only 520 can be credited contributions used for the equation.

Yes - 2,080 contributions is 40 years. I find it interesting that someone who already has their 40 years at age 66 but chooses to continue to work and not draw their SC pension will still be paying PRSI while someone who chooses at 66 to work and draw their SC pension will not pay PRSI.

 

[irbx]

Yes - 2,080 contributions is 40 years. I find it interesting that someone who already has their 40 years at age 66 but chooses to continue to work and not draw their SC pension will still be paying PRSI while someone who chooses at 66 to work and draw their SC pension will not pay PRSI.

I agree currently it's makes sense to drawn down old age pension at 66 if you got the full 2080. Even if you continue to work after 66.

 

[S class]

I will qualify for a pension based on an average of 15 under the averaging calculation method in January 2024. If I continued to work to age 70 I would gain an average of 20.

Sounds good so far.

But I would then lose out on approximately 40% of the difference between the average 20 calculation and the much lower total contributions calculation in 2028, due to the 10 year phasing out of the averaging method.

There could be an employment opportunity for specialist state contributory pension advisers, to figure out all the possible pension qualification and continuing working beyond 66 plans for the next 11 years.

 

[Kev1964]

I agree with your last point S Class. The UK system of getting an actual forecast is a much better service than is operated here. The Gov should be working to bring clarity to a fundamental element of retirement rather than allowing an opaque system continue as is. I accept that our system has become more complicated over time and that the principle that the dept will check multiple calculations to find the one most beneficial is positive.

Maybe once the Average system is phased out fully (2035?) the Gov can develop a system where citizens can easily forecast their state pension themselves as well as clearly understand how to improve their position.

 

[Towger]

No PRSI when you're over 65??

This is being changed in January. PRSI will only be zero rated for those under 70 who drawdown the State Contrib Pension.

Just to add, Social Welfare talks about being PRSI exempt in their documentation. You are not PRSI exempt, being exempt from PRSI is different.
Class A employees move to Class J (0% Employee, .6% Employer) and Class S self employed move to Class M (0%). Much the same as a item being VAT Exempt or Zero Rated.

This opens up another issue for Employers, shall I employee someone and pay an 0.6% PRSI or the person on 11.15%?

 

[michaelm]

I'd have liked to see flexibility in the other direction also. I intend to retire @ 60 and will have 2080+ stamps before then. I'd like to be able to draw an actuarially reduced contributory state pension @ 60. Methinks that such an option could make early retirement a live prospect for many.

 

[S class]

There could be a trap in this new system for anyone qualifing for the contributory pension using the averaging method.

At present the maximum Prsi contributing life span used in the averaging calculation is 50 years (age 16 to 66). This will increase to a maximum of 54 years under the new Prsi system. This extra time span devisor could cancel out the extra years of paid Prsi in the averaging method calculation. This, added to to extra 4 years loss due to the phasing out of the averaging method over a 10 year period could result in the person qualifing for a lower contributory pension at age 70.

 

[Freelance]

The UK system of getting an actual forecast is a much better service than is operated here. The Gov should be working to bring clarity to a fundamental element of retirement rather than allowing an opaque system continue as is. I accept that our system has become more complicated over time and that the principle that the dept will check multiple calculations to find the one most beneficial is positive.

I contacted DSP last year (I was 64 at the time) to ask if, based on my contribution history, current circumstances etc. I would receive the Over 65 payment and in due course the Contributory Pension. The response was somewhere between derisory and positively hostile. It ended with a statement that it was not the Department's policy to speculate on possible future entitlements and if I wanted to know whether I would receive these payments I should apply at the appropriate time and my application would be assessed.

There could be an employment opportunity for specialist state contributory pension advisers, to figure out all the possible pension qualification and continuing working beyond 66 plans for the next 11 years.

@S class You are hereby nominated for the position.

 

[Kev1964]

I contacted DSP last year (I was 64 at the time) to ask if, based on my contribution history, current circumstances etc. I would receive the Over 65 payment and in due course the Contributory Pension. The response was somewhere between derisory and positively hostile. It ended with a statement that it was not the Department's policy to speculate on possible future entitlements and if I wanted to know whether I would receive these payments I should apply at the appropriate time and my application would be assessed.


@S class You are hereby nominated for the position.

That's a very disappointing attitude to have encountered. My experience of dealing by phone with a few different government departments has been largely positive where attitude is concerned. Admittedly the baseline has not been very high in the past. Knowledge seems to be slowly improving as is the quality and extent of online information on Gov.ie.

However there are still gaps where clarity is concerned. One example is that I've been unable to source the revised table of benefits for the State Pension Contributary Average method. We have been told what the new full pension is but not the lower levels, as far as I can see anyhow. Maybe somebody else has been better able to track down this information?

You probably know this already but for the sake of other readers, if you decide to have another go, I'd suggest approaching it slightly differently. Rather than asking for information specific and personal to you, ask a hypothetical question using your own data. For example, in relation to the over 65 payment, ask how does one qualify for a payment? Expand the conversation with questions that help you draw a conclusion that is likely to apply to yourself.

Sharing your de-personalized PRSI record here will probably produce several responses regarding your likely pension entitlement.

 

[murphaph1]

Here in Germany I get a forecast of my expected state pension in the post every year or two. They start sending these out automatically once you are 40 I think. Even if I get a statement of PRSI contributions I can't be at all sure of my Irish forecast because of opaque things like pre-entry credits. I am in the position of likely being just shy of the 2080 contributions at age 66 so I will want to defer my COAP a little while, but with the above attitude by the DSP how will I even know how long I need to defer for?!

As we move towards the TCA I really hope this opaqueness comes to an end and we all know in advance exactly how short we are etc.

 

[Kev1964]

Here in Germany I get a forecast of my expected state pension in the post every year or two. They start sending these out automatically once you are 40 I think. Even if I get a statement of PRSI contributions I can't be at all sure of my Irish forecast because of opaque things like pre-entry credits. I am in the position of likely being just shy of the 2080 contributions at age 66 so I will want to defer my COAP a little while, but with the above attitude by the DSP how will I even know how long I need to defer for?!

As we move towards the TCA I really hope this opaqueness comes to an end and we all know in advance exactly how short we are etc.

Being just shy of 2080 at age 66 is a very strong position to be in. Depending on what “just shy” means it may mean you can ignore the average method. This simplifies matters significantly. If you know or forecast what the exact total of PRSI contributions will be then your pension will be a pro-rata amount based the full notional pension amount, currently €277. In practice that means divide €277 by 2080 and multiply by your number of PRSI contributions at age 66. That’s your weekly pension amount based on current rates and rules. One word of caution…. I think I read somewhere that PRSI contributions in the year that your claim your pension are disregarded. Small impact if born in January, bigger for December.

Co-incidentally I was just enquiring about PECS myself this week. What I was told was for the year you began paying PRSI, if it was at any time after week 1 in the calendar year, then your PRSI record for that year will be topped up to 52. I forgot to ask if that‘s helpful just for qualifying for a state pension or whether it helps towards the pension amount. Maybe someone on here knows. In any event it’s something that happens automatically when you claim your pension and will not appear on any PRSI statement that you ask for.

So what else can you do to fill in gaps to try to achieve 2080 contributions? If there are gaps from 2018 calendar onwards you have until 31.12.23 to submit an application to pay voluntary contributions for that year. In general you can go back 5 years for this tactic.

There is also the option of credits for home caring, etc but I know less about how you apply for them.

As you say deferring your COAP beyond age 66 is yet another way but do your sums so that it’s beneficial to do this. Sacrificing a yearly benefit of €13/€14k for the benefit of an extra few hundred euros a year needs to make sense.

I’m happy to be contradicted on any of the above as I am only now trying to understand the same question you are.