Retiring just short of 10 years contributions for Irish pension - options ?

[ukpokerguy]

I'm retiring shortly after having accumulated 8.5 years of contributions towards receiving an Irish pension.

I already have a full UK pension (having 35 years UK contributions) to come but as I understand it I need to have 10 years contributions, in the Republic, in order to receive a small state pension from here.

Do I have any options in paying up to the 10 years required or do I just lose any hope of getting an Irish pension ??

 

[LDFerguson]

What age are you?

 

[Lisgoold]

Sorry, don't know the answer about making it up to ten years, but......you need to check your UK forecast. The 35 year figure, is only relevant if you started paying NI after 2016.

There are plenty of people who have 40 years of contributions , and won't get full pension. There are also people who will get it , with only 30 years worth.
It depends (mainly) on wether or not you were contracted out, usually by being in DB scheme through work.

But yes, for someone starting working life after 2016, it's a straight figure of 35 years .

So check, and read all of, your forecast.

 

[I'm Nobody]

I'm in a similar situation. This October I will have 9 years contributions for an Irish pension.
I was a carer for several years here, hoping those years with help towards an Irish pension
Worked in the UK for 9 years. Topped up UK voluntary contributions for 15 years giving me 24 years.
It depends on your age.
I'm 66 on the first of January 2023.
so any contributions after that will not count.
I do wonder though, I will be paying preliminary tax for 2023 in October this year so would that count towards my Years?

 

[ukpokerguy]

What age are you?

I am 62 next birthday

 

[ukpokerguy]

Sorry, don't know the answer about making it up to ten years, but......you need to check your UK forecast. The 35 year figure, is only relevant if you started paying NI after 2016.

There are plenty of people who have 40 years of contributions , and won't get full pension. There are also people who will get it , with only 30 years worth.
It depends (mainly) on wether or not you were contracted out, usually by being in DB scheme through work.

But yes, for someone starting working life after 2016, it's a straight figure of 35 years .

So check, and read all of, your forecast.

Its not the UK side of things that concerns me.

Is there a way to add in additional PRSI payments to make upto 10 years on the Irish side?

 

[NoRegretsCoyote]

I am 62 next birthday

You need a minimum of 10 years paid contributions at one of several PRSI types. You have paid Class A (employee) but presumably not Class S (self employed).

You will pay Class S PRSI if you have a minimum of €5,000 self-employed income in a tax year and receive 52 PRSI contributions. The rate is 4% of your income or €500, whichever is higher. Two years of self-employment would take you to the minimum ten years to qualify for the minimum state pension.

Is there any self employment you can take up? Alternatively do you have a lot of savings you could deploy? Investment income that generates dividends of €5,000 a year or a rental property that generates profits of same amount would do it. Your capital would be at risk of course, but the benefits are large.

Did you start in the Irish system only in your 50s? The yearly average approach means that you could qualify for a full pension of €253.30 at 66. It's well worth doing as much as you can to get the minimum PRSI paid before 66. If your contributions are spread over decades you could still qualify for the minimum pension of €101.40.

 

[Groucho]

My understanding is that even if you don't have 520 paid reckonable PRSI contributions you will still be eligible to apply for what is called a pro-rata pension.

This is a payment based on the proportion of Irish social insurance contributions to the total number of social welfare contributions that you have paid both here and in the UK.
It's complicated, so you would be advised to study the relevant Operational Guidelines and see how they fit your situation.

EU or Bilateral Agreement (BA) pro-rata State Pension (Contributory)
If you do not qualify for a standard State Pension (Contributory) from this Department based on your Irish social insurance alone and you have periods of insurance in another EU country or Bilateral Agreement country you may qualify for a pro-rata pension using your combined social insurance records.
This pension is based on a combination of full-rate Irish social insurance contributions and reckonable social insurance in EU countries or a country with which Ireland has a Bilateral Social Security Agreement. The pension is a pro-rata payment based on the proportion of Irish social insurance contributions to the total number of contributions paid and/or credited, that is, Irish and other insurance combined.

 

[NoRegretsCoyote]

This is a payment based on the proportion of Irish social insurance contributions to the total number of social welfare contributions that you have paid both here and in the UK.

You're right.

From the operational guidelines:

Step 1:
The notional pension is calculated. Notional pension is that which would be payable if all social insurance contributions, both full-rate Irish and non-Irish, were treated as Irish contributions. The full-rate Irish and non-Irish reckonable contributions are therefore added together and the total is then divided by the number of years to get the yearly average number of contributions.
Step 2:
The following formula is then used
A multiplied by B divided by C
(AxB)/C
A = the notional rate of pension i.e. the rate (personal plus increase for a qualified adult, if applicable (see below re qualified adult)) which would be payable if all social insurance, both full-rate Irish and foreign, was treated as full rate Irish social insurance.
B = the no. of full rate Irish contributions
C = the total no. of contributions (full rate Irish + foreign)

So (very roughly) @ukpokerguy would get have the following values

A: €253.50
B: 8.5
C: 43.5

Which gives a pro-rated pension of €50 a week or so.

I still think it's better if at all possible to get to the Irish ten years (520) so that a minimum pension of €101.40 a week is payable.

 

[Groucho]

I still think it's better if at all possible to get to the Irish ten years (520) so that a minimum pension of €101.40 a week is payable.

Agreed.

So what he really needs to do is to find some sort of part-time job (even one day a week would suffice) that will enable him to accumulate the 78 additional paid PRSI contributions that he needs. He'll need to have accumulated these before the year in which he turns 66. And as he's still only 61, he has over 4 full years in which to to do it!

EDIT: Alternatively, maybe he could he set up an ARF and start drawing from it? That would mean paying Class S PRSI.

 

[NoRegretsCoyote]

So what he really needs to do is to find some sort of part-time job (even one day a week would suffice) that will enable him to accumulate the 78 additional paid PRSI contributions that he needs.

Self-employment might be even easier depending on situation.

If he has contracting or consulting income of as little as €5k a year he will pay the €500k PRSI and get 52 contributions. Only has to be for 2023 and 2024 as well

 

[LDFerguson]

An additional option for accumulating the all-important Class S PRSI contributions is if you have a pension fund in Ireland, you can retire it, take your lump sum and put the balance of the fund into an Approved Retirement Fund (ARF). Withdrawals from an ARF are subject to Class S PRSI which counts towards the State Contributory Pension.

 

[time to plan]

An additional option for accumulating the all-important Class S PRSI contributions is if you have a pension fund in Ireland, you can retire it, take your lump sum and put the balance of the fund into an Approved Retirement Fund (ARF). Withdrawals from an ARF are subject to Class S PRSI which counts towards the State Contributory Pension.

Is there any minimum to be able to pay PRSI?? E.g. is you had 5k in savings, could you put it in a pension, get the tax deduction, retire, get an ARF, draw down and pay PRSI?

 

[LDFerguson]

Is there any minimum to be able to pay PRSI?? E.g. is you had 5k in savings, could you put it in a pension, get the tax deduction, retire, get an ARF, draw down and pay PRSI?

Off the top of my head, the minimum amount required to set up an ARF is €10,000 with some providers and €20,000 with others. And bear in mind that it's generally advisable to take your tax-free lump sum first before moving the rest into an ARF, so that would suggest a minimum pension fund of around €13,333. (Tax-free lump sum of €3,333 and €10,000 into an ARF.)

The ARF withdrawal must be at least €5,000 per year to get 52 Class S PRSI contributions, so this would also be a factor. How many years' contributions do you need? If you just need 104, then the above €13,333 example would do it: withdraw €5,000 from the ARF in each of two years and there you go. If you need more, then you'd need to hike up the size of the pension fund.

This plan is not going to work for everyone. The ideal candidate is someone who has no other taxable income in the years they draw €5,000 per year from the ARF. That way, they'll be exempt from Income Tax and USC on it.

Regards,

Liam
www.FergA.com

 

[time to plan]

Off the top of my head, the minimum amount required to set up an ARF is €10,000 with some providers and €20,000 with others. And bear in mind that it's generally advisable to take your tax-free lump sum first before moving the rest into an ARF, so that would suggest a minimum pension fund of around €13,333. (Tax-free lump sum of €3,333 and €10,000 into an ARF.)

The ARF withdrawal must be at least €5,000 per year to get 52 Class S PRSI contributions, so this would also be a factor. How many years' contributions do you need? If you just need 104, then the above €13,333 example would do it: withdraw €5,000 from the ARF in each of two years and there you go. If you need more, then you'd need to hike up the size of the pension fund.

This plan is not going to work for everyone. The ideal candidate is someone who has no other taxable income in the years they draw €5,000 per year from the ARF. That way, they'll be exempt from Income Tax and USC on it.

Regards,

Liam
www.FergA.com

Thanks. In this case the prize of a state pension is substantial so worth looking at I reckon. Even if you had to borrow the money, given that you could get the tax deduction on the contribution?

 

[Groucho]

The ARF withdrawal must be at least €5,000 per year to get 52 Class S PRSI contributions, so this would also be a factor. How many years' contributions do you need? If you just need 104, then the above €13,333 example would do it: withdraw €5,000 from the ARF in each of two years and there you go. If you need more, then you'd need to hike up the size of the pension fund.

Worth adding that even if you make a €5,000 ARF withdrawal, you'll only pay €200 PRSI (@4%) - so you'll still need to make a voluntary PRSI top-up of €300 to reach the required €500 minimum reckonable Class S contribution.

 

[NoRegretsCoyote]

Worth adding that even if you make a €5,000 ARF withdrawal, you'll only pay €200 PRSI (@4%) - so you'll still need to make a voluntary PRSI top-up of €300 to reach the required €500 minimum reckonable Class S contribution.

I don't think there's anything voluntary to it.

It's 4% of your Class S reckonable income or €500, whichever is higher, isn't it?

So anything reckonable income under €12,500 and you pay €500 I think.

 

[bstop]

The 500 euro minimum payment does not apply to distributions from an ARF.
The Prsi paid on ARF distributions can be any smaller amount. The critical thing is, if the distributions are less than 12500 euro per year you need to make monthly drawdowns. No matter how small the monthly drawdowns you will get 52 S class Prsi contributions per year.

ARFs are set up to be liable for S class Prsi to be paid on all distributions. They do not operate the same as self employment income which is only liable to S class Prsi if income exceeds 5000 euro.

 

[Groucho]

I don't think there's anything voluntary to it.

It's 4% of your Class S reckonable income or €500, whichever is higher, isn't it?

So anything reckonable income under €12,500 and you pay €500 I think.

That may be correct in theory, but it doesn't work in practice!

I had to contact DSP annually and ask them to invoice me for the balance of Class S PRSI in order to bring it up to the magic €500!

 

[Dave Vanian]

Although I'm aware of the €500 stated minimum, I'm also aware that in practice if you make a withdrawal each year from an ARF you will be credited with Class S PRSI even if your PRSI deduction is less than €500. I think this is also @bstop 's personal experience, from what I've read here.

@Groucho - When you were making ARF withdrawals, did you get any Class S PRSI contributions added to your total?