Farming & Fisheries

FDC: Why paying your PRSI is so important for your pension

January 28th, 2022 4:00 PM

The date you first start paying PRSI is known as the date of entry into insurance.

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THE State contributory pension is payable at the age of 66. 

The Pension Commission was set up to examine the sustainability and eligibility issues with the State pensions as it had been previously recommended to put out the age you became eligible for the state pension to 67 or 68. 

This has not yet been put into law but may at some time in the future, as there are concerns about the sustainability of the State pension that there will be too many people claiming it and not enough taxpayers contributing to it.

It is very important that everyone ensures that they are paying PRSI so that they will be in a position to claim a contributory pension which is not means-tested. 

You can have other income and still get it. 

If you are not paying PRSI then you will have to opt for the non- contributory pension which is means tested so if you have other income or assets this might affect your qualification for the non-contributory pension.

To qualify for a State Contributory Pension you need to have enough class A, E, F, G, H, N or S social insurance contributions (PRSI) paid. 

You need to have paid PRSI before you reach the age of 56. The date you first start paying PRSI is known as the date of entry into insurance, and this is very important when you are calculating the yearly average number of PRSI contributions.

You will need to have a certain number of paid PRSI contributions, and this will need to be a minimum of 520 contributions (10 years contributions) and only 260 of the 520 can be voluntary contributions.

You will also need a certain yearly average or a certain total number of PRSI contributions depending on if you are assessed under the average rule or total contribution approach, whichever is more beneficial. 

If you qualify for a pension since September 1st 2012 you can be assessed under either system and this takes into account the years that a person might not be working due to the fact that they that might have been caring for children or a relative.

Under the Homemaker Scheme it was allowed to take up to 20 years out of the workforce starting from April 6th 1994 and this applied to anyone caring for children up to the age of 12 or a person with a disability aged 12 and over. Under the total contribution system, you can claim up to 20 years’ Home Caring periods which can start before April 6th 1994.

These credits for the years spent caring are very useful in qualifying for a contributory pension and increasing the amount of pension payable as the pension is based on the total amount of PRSI paid and the credits received for the years spent caring. 

Hopefully when the two are combined that they exceed a total of 2080 credits then a full pension is payable otherwise it is adjusted pro rata.

It is important to check your PRSI record.

This can be done by requesting a copy of contribution statement through My Welfare.ie.

It is also worth bearing in mind that if you are claiming an increase in your pension for an adult dependant which could be your spouse, civil partner or cohabitant then this part of the pension is means-tested. 

Your income is not taken into account but any income your adult dependant has from self-employment, savings or capital will be taken into account for the duration that you are getting the allowance for them. As each situation is different it is best to get professional advice to access the eligibility to the State Contributory Pension. 

• Philip Salter is an accountant with FDC in Skibbereen.

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