Pension drawdown strategy

[Sadim]

I got a notification from the UK pension authorities to say that I have 10 qualified years of NI contributions and I am, therefore, entitled to a partial state pension. I thought this would be added to my Irish record ( currently 25 years) and I would get a combined pension, at the rate of my country of residence. Basically, I would get the Irish state pension due to the combined contributions in both countries.
Are people saying that I could get both pensions, if I make voluntary contributions ( I would need another 20 years of UK contributions)?

You do not need the full additional 20 years if you do not want to. What you are talking about is voluntary contributions?

10 qualifying years equates to a UK state pension of £44.75pw and each qualifying year you add to that increases it by roughly £5pw. It is entirely up to you how many years you wish to add. I myself had 8 qualifying years and paid for a further 7 => 15 total. Will probably pay more in the future. At current rates 15 years equates to a pension of £67.12pw. It will not support a grand lifestyle but it is an extra, and its an extra at a time your income decreases dramatically anyway.

 

[Allpartied]

You do not need the full additional 20 years if you do not want to. What you are talking about is voluntary contributions?

10 qualifying years equates to a UK state pension of £44.75pw and each qualifying year you add to that increases it by roughly £5pw. It is entirely up to you how many years you wish to add. I myself had 8 qualifying years and paid for a further 7 => 15 total. Will probably pay more in the future. At current rates 15 years equates to a pension of £67.12pw. It will not support a grand lifestyle but it is an extra, and its an extra at a time your income decreases dramatically anyway.

Thanks Sadim. Do you know how this affects my Irish pension? I had assumed that the two pension records would be combined and I would get the full state pension of the country I was residing in , at the time of my retirement. Can you get two full pensions? It seems unlikely to me.

 

[Sadim]

Thanks Sadim. Do you know how this affects my Irish pension? I had assumed that the two pension records would be combined and I would get the full state pension of the country I was residing in , at the time of my retirement. Can you get two full pensions? It seems unlikely to me.

I think it is nearly impossible to get full state pensions in each jurisdiction. Think of it, under the new TCA rules you need 40 full years to get a full Irish state pension and under the UK system you need 35 years to get a full UK state pension. I suppose if you maxed out on voluntary contributions for both systems you technically could get near a maximum under each.

Instance in my own case I spent 5 years in Scotland in the 1990s so, they are missing from my PRSI record. Straight away let us assume that has me down to 35/40ths of the Irish state pension. Sure, I could add in my UK NI record to top it up and get the max Irish pension. However, my thinking is to leave the Irish as it is and take my 8 years in the UK (5 actual + 3 notional) and pay voluntary under the UK system. At the moment, I have a maximum option of 14 historic years (2006/07 - 2019/20 incl) then I can add 11 more future years up to my UK retirement date (2020/21 - 2030/31) = 33 qualifying years which is near the maximum (35).

- 35/40 x €248.30 = €217.26
- 33/35 x (X or Y) = £156.15 - X and Y is a hybrid of the old and new UK state pensions, cut-off date 5th Apr 2016
- That gives a total of €390pw roughly...... but that is aggressively paying into the UK system for 25 additional years.

The full standard Irish SCP is €248.30 and the UK is £175.20 = €443pw

I would welcome a counterargument!

 

[Conan]

Thanks Sadim. Do you know how this affects my Irish pension? I had assumed that the two pension records would be combined and I would get the full state pension of the country I was residing in , at the time of my retirement. Can you get two full pensions? It seems unlikely to me.

If you have NI service in the U.K. and a PRSI record in Ireland, you have two options:
- draw two separate pensions (probably reduced pensions), or
- ask the Dept of Social Protection to add your U.K. years to your Irish record, to improve your Irish State Pension.
You need to work out which option will give you the higher income.

 

[jim]

You can get both state pensions in full.

For uk pension, as outlined, you will need to buy back years if you are elligble.

For ireland, if you prsi contribution coversni think 40 years youll get it.

For example work three yrs in uk, this is main criteria for elligibility.

Work 40 years in ireland. Its not in concieveable that someone will work 43 years in their life.

 

[Sarenco]

You can get both state pensions in full.

Can you explain how that’s possible?

@Sadim’s posts would suggest otherwise.

 

[jim]

Never mind sadim Sarenco. Read the thread man, youve been a significant contributor to it and read the HMRC website again, youve posted a link above.

Work 3 yrs in uk = elligible to pay NI stamps.
Live abroad = qualify for class 2 stamps.
Otherwise pay class 3 stamps which are 5 times more expensive than class 2.

You can purchase voluntary NI ontributions at either class 1 or class 2 and can go back a certain number of years, i think its 6? Maybe longer at the moment due to some nuance in the rule?

Once you have 10 years you get the basic uk pension - 40 quid or whatever.

On a go fwd basis you continue to pay your annual stamp (whether class 2 or 3 - depends on circumstances) so long as you remain in insurable employment in ireland.

Do the above until you have amassed 35 years you get full uk pension.

Whats not to undersatnd?

Now in ireland we need 40 years of prsi contributions - please correct me if im wrong?

Is it not concieveable that an individual works in uk for 3 years and in ireland for 40 years? Of course it is.

There is another interesting twist to this which i am open to correction on.

You can continue to amass irish prsi stamps whilst drawing you occupational pension. Therefore you could retire early and still make up the irish stamps to get full pension.

The tricky part is in timing you retirement as you need to be in insurable emp in ireland in order to be able to pay uk voluntary stamps. So this would require some planning.

 

[50andOut]

Given retirement age is 66/67/68. you are looking at a near 50 year working life - (part time jobs during college also receive stamps)

If you retire early, ensure PRSI continues to be paid until retirement age.

Jim I think you r last point only means you move to class 3 instead of 2, do doesn't stop you paying stamps, just will cost a little more (but value remains)?

 

[50andOut]

Worked example of my own situation
Moved from UK to Ireland at age 23 (age at Jan 2021 = 46)

UK Stamps = 8
Irish Stamps = 23

I have recently purchased the voluntary class 2 back to 2006. ++14 years UK
I will continue paying annually voluntary UK class 2 for next 13 years (out of the next 20 years till retirement age) ++13 years UK

Total UK = 35 (with 7 years spare to purchase if required)

I will continue working in Ireland paying Irish stamps until retirement age (either through working income or ARF income) ++ 20 years

Total Ireland = 43

This is assuming pension age stays at 66, increases in the pension age obviously increases the period which to accumulate enough stamps.

 

[Sadim]

If you have NI service in the U.K. and a PRSI record in Ireland, you have two options:
- draw two separate pensions (probably reduced pensions), or
- ask the Dept of Social Protection to add your U.K. years to your Irish record, to improve your Irish State Pension.
You need to work out which option will give you the higher income.

In actual fact I think the DSP in Sligo do that for you!

 

[Sadim]

Worked example of my own situation
Moved from UK to Ireland at age 23 (age at Jan 2021 = 46)

UK Stamps = 8
Irish Stamps = 23

I have recently purchased the voluntary class 2 back to 2006. ++14 years UK
I will continue paying annually voluntary UK class 2 for next 13 years (out of the next 20 years till retirement age) ++13 years UK

Total UK = 35 (with 7 years spare to purchase if required)

I will continue working in Ireland paying Irish stamps until retirement age (either through working income or ARF income) ++ 20 years

Total Ireland = 43

This is assuming pension age stays at 66, increases in the pension age obviously increases the period which to accumulate enough stamps.

I wasn't disputing a scenario like what you have outlined, it certainly is possible if you start early. Typically though people retire early 60s and probably spent a few of their early years in college so, I would have seen it a struggle to wrap up a full 40 years in that scenario (which resembles my own). I certainly see myself falling short, perhaps 32 - 35 years total. Say, 35 max will be worth €217.26pw at current rates.

As regards the UK state pension, in my own case, I went to the UK at age 28 and stayed 5 years, got a notional credit for 3 additional years bringing me to 8 qualifying years. I have paid for 7 further years since so, I am at 15 years so far. Plan is to pay for the other 7 historic years some stage soon so that brings me to 22 years and I may pay a further 11 years to my UK retirement date in May 2031. So, even availing of every option open to me I get to 33 qualifying years which at current rates is worth £158.17pw.

Still, the real comparison here is what accumulated fund would you need to buy an annuity from an insurance company giving you roughly €390pw (€20,400).... I reckon about €500k! So, I think maxing out on your state pension options is a pretty good strategy. I am sure there are other that disagree!

 

[Sarenco]

Thanks for the worked example @50andOut - very clear.

Given retirement age is 66/67/68. you are looking at a near 50 year working life - (part time jobs during college also receive stamps)

I think that's the key point - to qualify for a full UK and Irish State pension, you would have start paying NI contributions in your teens and PRSI by your mid-20's.

I still think the facility to back pay NI contributions at such a low cost is a really fantastic deal.

 

[SGWidow]

That is the gist of it alright but you have to apply to HMRC in Newcastle to determine your eligibility first

Thanks Sadim,

Sorry to be a pain. Can I just do a belt and braces on this please? I have been on to the UK people who have confirmed my eligibility. To be honest, it's significantly easier to get an answer here on certain points than from those guys!

So, are you sure my supposition is correct or is it that you think it's probably correct? [Any help genuinely appreciated].

I will continue working in Ireland paying Irish stamps until retirement age (either through working income or ARF income) ++ 20 years

50andOut,

With that sort of brain power, no wonder that you managed to successfully head for the hills early!

Now to my question - are you saying, for someone in his 50s, that by paying the stamp due on ARF drawdowns that these PRSI payments work for the purposes of having insurable income to qualify for Class II contributions? Just for clarity also - is there a minimum drawdown/PRSI payment required? (I have a vague recollection of PRSI being set at a minimum of €500?)


Finally, a general question - are Class II contributions not due to stop sometime soon? (I have another recollection of having read this somewhere!)

BIG THANKS to all for the help and guidance here - very much appreciated.

 

[Sadim]

Thanks Sadim,

Sorry to be a pain. Can I just do a belt and braces on this please? I have been on to the UK people who have confirmed my eligibility. To be honest, it's significantly easier to get an answer here on certain points than from those guys!

So, are you sure my supposition is correct or is it that you think it's probably correct? [Any help genuinely appreciated].




50andOut,

With that sort of brain power, no wonder that you managed to successfully head for the hills early!

Now to my question - are you saying, for someone in his 50s, that by paying the stamp due on ARF drawdowns that these PRSI payments work for the purposes of having insurable income to qualify for Class II contributions? Just for clarity also - is there a minimum drawdown/PRSI payment required? (I have a vague recollection of PRSI being set at a minimum of €500?)


Finally, a general question - are Class II contributions not due to stop sometime soon? (I have another recollection of having read this somewhere!)

BIG THANKS to all for the help and guidance here - very much appreciated.

SG, you have to apply to HMRC first.... a Form CF83. I would attach a separate sheet listing my employment(s) since leaving the UK including Name/Address of Employer and dates from/to for each. Tick the Class 2 option in one of the questions. HMRC will tell you themselves what you can pay. There is also an additional criteria.... you must show you worked in the UK and paid NI right up to the date you left the UK. The reason for this is that Class 2 was obviously brought in for the self-employed originally but was extended to those who went abroad on "temporary work assignment" so, the idea is you stopped in the UK on a Friday, left the country pretty immediately and then have worked since. For the period you have worked abroad (Ireland) you should get the Class 2 option, you will get Class 3 for the periods you were not working.

Remember too, you can ignore the Class 3 options and just concentrate on your Class 2 years if you wish. This is a voluntary system.

 

[Sadim]

Thanks for the worked example @50andOut - very clear.

I think that's the key point - to qualify for a full UK and Irish State pension, you would have start paying NI contributions in your teens and PRSI by your mid-20's.

I still think the facility to back pay NI contributions at such a low cost is a really fantastic deal.

As a participant in that deal I am paying to Her Majesty and intend to exercise a lot more options over future years!

 

[50andOut]

for someone in his 50s, that by paying the stamp due on ARF drawdowns that these PRSI payments work for the purposes of having insurable income to qualify for Class II contributions? Just for clarity also - is there a minimum drawdown/PRSI payment required? (I have a vague recollection of PRSI being set at a minimum of €500?)

Finally, a general question - are Class II contributions not due to stop sometime soon? (I have another recollection of having read this somewhere!)

BIG THANKS to all for the help and guidance here - very much appreciated.

PRSI deductions from ARF will contribute to the Ireland years qualifying years calc only but since this income is not from employment it does not satisfy the UK condition of working abroad for class 2. So I expect to move to class 3 at the point of ceasing work. Yes there is a minimum drawdown to meet the PRSI threshold, I think €500 is right - which is met from the first €12.5k anyhow.

I remember something about class 2 stopping but think maybe it was more about the backdated payments. That said its all subject to change in the future we can only hope its not too drastic.

 

[Sadim]

PRSI deductions from ARF will contribute to the Ireland years qualifying years calc only but since this income is not from employment it does not satisfy the UK condition of working abroad for class 2. So I expect to move to class 3 at the point of ceasing work. Yes there is a minimum drawdown to meet the PRSI threshold, I think €500 is right - which is met from the first €12.5k anyhow.

I remember something about class 2 stopping but think maybe it was more about the backdated payments. That said its all subject to change in the future we can only hope its not too drastic.

Well, I found the bit about ARF highly informative myself. I am not really up to speed myself on them.

To qualify for Class 2 contributions in the UK you must show you were in "insurable employment abroad". Yes, there has been a lot of talk about doing away with Class 2 but it has not happened yet. I remember reading somewhere that it would be replaced by Class 4 but the costs/thresholds/criteria would be similar so, it does not seem like a big change, who knows?

That is a very important last point to make 50andOut, any state pension system is subject to legislative change unlike your occupational pension which is kind of contractual (although tell that to the Waterford Wedgewood workers) so yes, they can change the rules. Indeed we have seen that in Ireland with the tinkering in 2012 and then changing the retirement age etc. The government also reserves the right to change the rules.

 

[SGWidow]

…..any state pension system is subject to legislative change unlike your occupational pension which is kind of contractual (although tell that to the Waterford Wedgewood workers)

Most pension schemes are subject to change - we don't need to quote extreme examples like WW - the ordinary non-disaster DB plan is inexorably dying - through, typically and sequentially, the closing off to new employees, then the closing off to future accrual, then the closing for good.

DB pensions were a nice idea of socialising later life income but they've had their day as they have been unable to resist the triple challenges of volatile markets, anaemic bond yields and increased longevity.

 

[Sadim]

Most pension schemes are subject to change - we don't need to quote extreme examples like WW - the ordinary non-disaster DB plan is inexorably dying - through, typically and sequentially, the closing off to new employees, then the closing off to future accrual, then the closing for good.

DB pensions were a nice idea of socialising later life income but they've had their day as they have been unable to resist the triple challenges of volatile markets, anaemic bond yields and increased longevity.

True, I was a trustee of a semi-state pension fund for nearly 10 years and I definitely remember the issues of solvency arising from 2012 or so. The point I was making though is that it is a lot easier for governments to change the rules with state pensions

 

[jim]

Anyone know whether its possible to make a payment to HMRC by doing a revolute stg transfer?
I have the HMRC sort code and account number and i have set them up as a "business" (as opposed to individual) payee.
They do accept either an EFT or a stg bank draft for payment of voluntary NICs.
Thanks