Irish State Pension: Average, TCA....and ”Alternative Average”

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Kev1964

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I was browsing today and came across the concept of Alternative Average” on Citizens Information ie.

State Pension (Contributory)

The State Pension (Contributory), previously called the Old Age (Contributory) Pension, is payable to people aged 66 and over who have worked and paid enough social insurance contributions.
www.citizensinformation.ie www.citizensinformation.ie

I was aware of TCA and Average but not this third method of calculating the amount of one’s Contributory Irish state pension. A quick search hasn’t produced any back up. At first read it seems to suggest that for applicants that entered the work force at a very young age who are normally disadvantaged under the “normal” Average method if there was a substantial gap in PRSI contributions..... they can disregard the years where no PRSI contributions were made.

So for example, I started work and paying PRSI at age 17, left for the UK at age 22 and had a 14 year gap in PRSI before coming home and resuming normal PRSI contributions at age 37. This article seems to suggest that I can ignore the missing 14 years and therefore improve my average.

I have maintained my PRSI record ever since coming home but will likely be relying on the TCA method to maximise my Irish State Pension...or so I thought until seeing this.

Is this method common knowledge?
 
Kev1964 said:
I was browsing today and came across the concept of Alternative Average” on Citizens Information ie.

State Pension (Contributory)

The State Pension (Contributory), previously called the Old Age (Contributory) Pension, is payable to people aged 66 and over who have worked and paid enough social insurance contributions.
www.citizensinformation.ie www.citizensinformation.ie

I was aware of TCA and Average but not this third method of calculating the amount of one’s Contributory Irish state pension. A quick search hasn’t produced any back up. At first read it seems to suggest that for applicants that entered the work force at a very young age who are normally disadvantaged under the “normal” Average method if there was a substantial gap in PRSI contributions..... they can disregard the years where no PRSI contributions were made.

So for example, I started work and paying PRSI at age 17, left for the UK at age 22 and had a 14 year gap in PRSI before coming home and resuming normal PRSI contributions at age 37. This article seems to suggest that I can ignore the missing 14 years and therefore improve my average.

I have maintained my PRSI record ever since coming home but will likely be relying on the TCA method to maximise my Irish State Pension...or so I thought until seeing this.

Is this method common knowledge?
Click to expand...

I'm not sure that you're reading that correctly.

Why not have a read of the Operational Guidelines, which state:

The alternative contribution test
Maximum rate pension is also payable where a person has an "alternative yearly average" of at least 48. The alternative yearly average is the average number of contributions paid and/or credited over the period from April 1979 to the end of the tax year before reaching pension age (66). The "alternative yearly average" applies only to persons who reached age 66 on or after 6 April 1992."
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I'm open to correction, but I see no reference, explicit or implicit, to entering the system at a very young age, or to any possibility of disregarding missing years.
 
Shirazman said:
I'm not sure that you're reading that correctly.

Why not have a read of the Operational Guidelines, which state:



I'm open to correction, but I see no reference, explicit or implicit, to entering the system at a very young age, or to any possibility of disregarding missing years.
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Hi Shirazman. Thanks for that information. It’s absolutely very possible I’m not reading it correctly.

The CI website seems to indicate that for persons retiring after 2012 that...(note the words “average rules” ie plural)

If you reach pension age on or after 1 September 2012​

If you reach pension age on or after 1 September 2012, you can be assessed using either the average rules (see above) or the new Total Contributions Approach (TCA).

On the operational guidelines it describes two types of “average” as follows:

The standard yearly average test

Maximum rate of pension is payable where a person has a "yearly average" of at least 48. The yearly average is the average number of full-rate contributions paid and/or credited per year over the period from 1953*, or from the year of starting insurable employment, if later, to the end of the tax year before reaching pension age (66).
A reduced rate pension is payable where a person has a yearly average of between 10 and 47. (See rates structure on page 20).
See also "Special State Pension (Contributory) for persons with social insurance contributions paid prior to 1953" below.

The alternative contribution test

Maximum rate pension is also payable where a person has an "alternative yearly average" of at least 48. The alternative yearly average is the average number of contributions paid and/or credited over the period from April 1979 to the end of the tax year before reaching pension age (66). The "alternative yearly average" applies only to persons who reached age 66 on or after 6 April 1992.

The difference between the two seems to be in the alternative version there is no mention of “from the year of starting insurance employment”. Instead it says from “April 1979...” It seems a tad unclear to me exactly what the alternative definition means while the CI people may have had a go at “interpreting” it. I like their interpretation. :)
 
I think what's going on is that prior to PRSI introduction in 1979, there were many manual workers who drifted in and out of the social insurance "stamp" based on their wage in any given week. For such workers on the borderline of the stamp, a pay change or a bit of overtime could push them into or out of insurance. Therefore their social insurance record could be very patchy and they might have a very low average for those pre 1979 years. This in turn would drag down their normal average contribution level. In order to rectify this anomaly, the alternative average looks at the period from 1979 onwards only. To that extent, it allows years prior to 1979 to be disregarded for calculation of average contribution level.
So for @Kev1964, the only UK years that can be disregarded are pre-1979 ones. Guessing that you were born in 1964, there's no joy there I'm afraid.
 
Right Winger said:
I think what's going on is that prior to PRSI introduction in 1979, there were many manual workers who drifted in and out of the social insurance "stamp" based on their wage in any given week. For such workers on the borderline of the stamp, a pay change or a bit of overtime could push them into or out of insurance. Therefore their social insurance record could be very patchy and they might have a very low average for those pre 1979 years. This in turn would drag down their normal average contribution level. In order to rectify this anomaly, the alternative average looks at the period from 1979 onwards only. To that extent, it allows years prior to 1979 to be disregarded for calculation of average contribution level.
So for @Kev1964, the only UK years that can be disregarded are pre-1979 ones. Guessing that you were born in 1964, there's no joy there I'm afraid.
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Ok that background makes more sense now that I read it again. Thanks for making the effort to explain.

Back to the drawing board so looking for the silver bullet that will get me a full contributory Irish state pension despite my missing 14 years of contributions!!
 
Kev1964 said:
The CI website seems to indicate that for persons retiring after 2012 that...(note the words “average rules” ie plural)
Click to expand...
........
Kev1964 said:
The difference between the two seems to be in the alternative version there is no mention of “from the year of starting insurance employment”. Instead it says from “April 1979...” It seems a tad unclear to me exactly what the alternative definition means while the CI people may have had a go at “interpreting” it. I like their interpretation. :)
Click to expand...

That's why I referred you to the source document! I suspect that, in their attempt to clarify things, the CI Bunnies may instead have muddied the waters!
 
Kev1964 said:
Ok that background makes more sense now that I read it again. Thanks for making the effort to explain.

Back to the drawing board so looking for the silver bullet that will get me a full contributory Irish state pension despite my missing 14 years of contributions!!
Click to expand...
If you carry on paying PRSI until you are 66, how many contributions do you think you'll end up with?
 
I am in a similar position to Kevin1964 so interested if anyone knows the answer.
Worked 4 years in ireland, then moved to the UK for 15 years. Back home 19 years now and have worked fulltime all these years... I will have roughly the same amount of contributions as kev1964 has by state pension age.. is there a way to pay back some missing years to get 100% irish state pension ?
 
I am looking at both the TCA calculations and Yearly Average Method.
The first method I am getting roughly 65% of the max allowable.
BUT in the Yearly Average Method I am getting a much larger amount.
Am I doing something wrong or is it possible that the Yearly Average in my case produces a much larger amount?
 
petereoin said:
Am I doing something wrong or is it possible that the Yearly Average in my case produces a much larger amount?
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It's quite possible - in my wife's case, the YAM will give her 56% more than the TCA will.

That's why they're phasing out the YAM - it's far too generous! ;)
 
To take an extreme example:
If someone only started paying A Class PRSI at say age 55, never having paid PRSI previously, their Average contribution would be 52 weeks. And they would have the minimum of 520 Paid contributions. So they would qualify for a full State Pension.
But they could be working alongside someone with say a 45 year record, but with say 15 years out of the workforce- not paying PRSI. They would not meet the "average of 48 weeks per annum" and so not get a full State Pension (even though they paid say 30 years PRSI).
The move to the TCA (albeit on a phased basis up to 2034) will eventually result in a more equitable payment, where you get a pension of 1/40th for each year (52 weeks) of contributions.
 
Over the next 10 years, they are phasing out the Average method and phasing in the TCA method. So the question is when will you turn 66? if over the next 10 years work out the both pensions amounts of TCA and the averaging system and allocate to the ratio below , to get the figure for that year of retirement. Also you can combine the UK and Irish one to make up the difference. But it is possible that us should be looking to max out UK pension via voluntary contributions, Claim for this on its own and Claim for the smaller Irish on its own.

During the transition period, the pension will be Change 10% per year how it calculated. I believe this is starting this year or next and agree the older system was too generous to any Workers who come to Ireland for the first time and work just 10 years or just a little over and get full pension

Year 1 90% Average and 10% TCA
Year 2 80% Average and 20% TCA
Year 3 70% Average and 30% TCA
On it goes each year untill
year 9 10% Average and 90% TCA
Year 10 100% TCA
 
Conan said:
To take an extreme example:
If someone only started paying A Class PRSI at say age 55, never having paid PRSI previously, their Average contribution would be 52 weeks. And they would have the minimum of 520 Paid contributions. So they would qualify for a full State Pension.
But they could be working alongside someone with say a 45 year record, but with say 15 years out of the workforce- not paying PRSI. They would not meet the "average of 48 weeks per annum" and so not get a full State Pension (even though they paid say 30 years PRSI).
The move to the TCA (albeit on a phased basis up to 2034) will eventually result in a more equitable payment, where you get a pension of 1/40th for each year (52 weeks) of contributions.
Click to expand...
I'm in this situation (12 years abroad from 22-34 and started work at 18 with a summer job), so find the current system very unfair though with the move to the TCA approach I'll be even worse off ! I will have made 33 years contributions by my 66th birthday. That someone with 11 years contributions can get the full state pension galls me to the core.
 
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I don't think you can just add irish and uk contributions together and get the same as if all irish. There is a separate formula.
 
Flybytheseat said:
I'm in this situation (12 years abroad from 22-34 and started work at 18 with a summer job), so find the current system very unfair though with the move to the TCA approach I'll be even worse off ! I will have made 33 years contributions by my 66th birthday. That someone with 11 years contributions can get the full state pension galls me to the core.
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If you have overseas National Insurance contributions, then you may be able to add these to your Irish record - to bridge the gap. Depending on where you worked overseas , Ireland has a number of Bi-Lateral Social Security Agreements which allow you to amalgamate all contributions so as to max your Pension in Ireland.
You should contract the Records Office of the Dept. of Social Protection- based in Buncrana who will advise you as to what to do to max your Pension.
Based on your numbers above, I doubt the move to the TCA will result in a significantky lower pension than you would get under the Average method (allowing for your 12 year gap in contributions).
 
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Flybytheseat said:
I'm in this situation (12 years abroad from 22-34 and started work at 18 with a summer job), so find the current system very unfair though with the move to the TCA approach I'll be even worse off ! I will have made 33 years contributions by my 66th birthday.
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Correct, I'm afraid.

Disregarding any reckonable overseas contributions, a quick and dirty calculation suggests that under the TCA you'll get 33/40ths (or 83%) of the full State Contrib Pension, while under the YAM you would have been in the 30-39 average Band, meaning that you would have got 90% of the full pension. It's unfortunate, but at least the difference is only about 7%
 
Marsupial said:
Correct, I'm afraid.

Disregarding any reckonable overseas contributions, a quick and dirty calculation suggests that under the TCA you'll get 33/40ths (or 83%) of the full State Contrib Pension, while under the YAM you would have been in the 30-39 average Band, meaning that you would have got 90% of the full pension. It's unfortunate, but at least the difference is only about 7%
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It seems the minister has hit on the perfect Irish solution.
It will reduce most people's pension entitlements, and, certainly not increase, anyone's.
But as long as that fecker up the road isn't getting a better deal than me, we are happy.
 
Allpartied said:
It seems the minister has hit on the perfect Irish solution.
It will reduce most people's pension entitlements, and, certainly not increase, anyone's.
But as long as that fecker up the road isn't getting a better deal than me, we are happy.
Click to expand...

On behalf of my two working children - who must pay PRSI to support the ever-growing number of pensioners, as well as paying a mortgage and raising a family - I'm pleased the the government has finally taken steps to tackle the anomalous State pension situation.

But on behalf of my mortgage-free missus who isn't raising any kids - and whose pension will also be reduced - I'm not really all that worried! She'll cope, notwithstanding the reduction of about 5% in her coming pension!
 
Marsupial said:
On behalf of my two working children - who must pay PRSI to support the ever-growing number of pensioners, as well as paying a mortgage and raising a family - I'm pleased the the government has finally taken steps to tackle the anomalous State pension situation.

But on behalf of my mortgage-free missus who isn't raising any kids - and whose pension will also be reduced - I'm not really all that worried! She'll cope, notwithstanding the reduction of about 5% in her coming pension!
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The gap in pensionable income, will just have to be made up via other welfare payments. Its just short sighted cost cutting and will create a host of anomalies.
We are not a poor country, we can afford to give people some basic dignity in old age. It just a question of wealth distribution.
Your children and my children, are working in an environment which is vastly more productive than when I was young. It is the productivity, and the wealth it creates which should form the basis of equitable welfare payments, such as the state pension.
In general productivity in the economy has increased significantly, over the decades and it is estimated that three workers today, are as productive as 5 workers in 1970. But who is getting the benefit of that massive increase in productivity. The share of the national income, for employed and self employed, in 1970 was 89%. But today it is only 60%. That's due to taxation policies which have benefited wealthy, individuals and corporations. So, you can see where I am coming from on this pensions time bomb garbage.
 
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