In 2019, I began receiving the widow’s contributory pension. As of April 2024, when I turn 66, I am expected to receive a higher rate. However, given the recent changes to PRSI starting from this year, I understand I will have to continue paying PRSI for my part-time job until I reach the age of 70, which also happens to be when I plan to retire.
For me to gain exemption from PRSI, I’d have to apply for the State pension. Still, I’m concerned about whether I would qualify for the maximum rate. Here is my contribution history for your reference:
I’ve been part of the workforce since 1973/1974 when I was 16. During the period leading to 1979, I made 92 paid PRSI contributions and received 100 credited contributions. At that point, I took on the duties of a homemaker, with a period as a recipient of the lone-parent allowance.
My return to work occurred in 2001, having spent time raising my children at home. Up until 2023, I’ve made 938 paid PRSI contributions and have been credited with an additional 327, totalling 1,265 contributions up until December 2023. I could use some advice on my chances of landing a full pension?
Ms A.F.
Your working life of nearly 50 years appears to have been full, although it seems the system has often worked against you. Now, you are faced with a challenging decision. If you opt to continue working until the age of 70, as your hope, you’ll be required to make contributions to PRSI at 4%. You can only avoid this by applying for your state pension, as those on a state pension are exempt from further PRSI contributions despite continuing to work.
Nevertheless, it is unlikely that you would qualify for a complete pension until late next year. Moreover, a system glitch denotes that you wouldn’t be able to avoid PRSI payments in any case.
As it stands, your widow’s pension – officially known as the Widow’s, Widower’s or Surviving Civil Partner’s (Contributory) Pension – is predicated either on your PRSI record or that of your late husband.
In the past, the strength of your husband’s PRSI history had sufficiently qualified you to receive the full weekly payment of €237.50 until you reached 66 years of age. Upon reaching your 66th birthday this April, you will rightly observe an increase in this amount to €277.30, equal to the full State contributory pension.
The Department of Social Protection has informed me that should a recipient of a widow’s pension qualify for a state contributory pension at a lower rate, they will continue to be paid the higher rate under the widows pension.
Unfortunately, this changed from the beginning of this year when the Government raised the age limit for PRSI liability to 70 in conjunction with provisions that allow individuals to postpone their State pension drawdown until the age of 70 to strengthen their PRSI record, resulting in a higher weekly pension payment. These changes have inadvertently caused you, and those like you, already getting the fullest payment through the widow’s pension, to be burdened with PRSI.
“Widow’s, Widower’s and Surviving Civil Partner’s Contributory Pension recipients would have to pay PRSI on earned income till the age of 70 or until they start receiving the State pension (contributory),” said the Department, sidestepping the point that you are ineligible to draw the State pension.
So, in effect, you will receive the same amount as the full weekly pension under the title of the widow’s pension instead of the State pension. However, this benefit will cease should you decide to remarry or choose to live together with someone, in which case the widow’s pension will be discontinued and you will then have to rely on the State pension you are qualified for.
Precisely for these reasons, the Department has refused to shift you to the lower State pension you would currently qualify for.
Drawing on the original text, let’s redefine the situation. It highlights the parallel between this scenario and other social welfare schemes for individuals over 66. It affords individuals the ability to augment their contribution history for the State pension (contributory). Notably, this might be problematic for someone who does not have a complete record and could potentially fail to meet the requirements for a widow’s pension later due to either cohabitation or remarriage.
The question pivots around your eligibility for a full pension. As suggested earlier, you’re currently not quite there yet. Assuming this is the reality, your continuation of work and ensuing PRSI weekly stamps should aid in reaching a full pension.
Taking the pension now, when not meeting the complete social insurance record, would solidify your pension at a lower rate permanently, even if the department authorised it, which is highly unlikely.
Moving on to ascertain the amount you would qualify for, when it comes to State pension, there are a couple of methods to determine this.
Firstly, the ‘yearly averaging’ method calculates the number of weekly PRSI stamps paid – or credited to you – throughout your career, which are then averaged over your entire working lifespan, from the time you first contributed to PRSI till your retirement. With this method, an average of 48 PRSI stamps per year or more is required for eligibility for a full State pension. Afterwards, the payment decreases in bands.
Secondly, there’s the ‘total contributions’ method that begins from the assumption that one needs 2,080 weekly stamps – equal to 40 years – for a full State pension. Half of these can be credited payments. Anything below this results in a reduced pension proportional to your PRSI record.
For those finding it hard to decipher these calculations, there’s good news. The Department of Social Protection will do the math using both formulas – and even a third alternative assessment model that’s a variant on the yearly averaging scheme (though this won’t apply to you). The department will then grant you a pension based on whichever method suits you best.
However, if your potential maximum widow’s pension supersedes either rate, you won’t receive a State pension, and remain subject to PRSI. PRSI credits affect this process.
PRSI credits feature in both calculation methodologies and there are varying scenarios that allow these to be added to your employment history.
Initially, when an individual enters the workforce, they are granted PRSI credits retroactive to the start of that fiscal year plus the two preceding years. Interestingly, these extra two years can be utilised for specific benefits, but they cannot be taken into account while determining eligibility for the State pension.
Additional regular social welfare credits exist for individuals who receive certain allowances. This encompasses maternity benefits, jobless benefits, sickness or disability stipends, an invalidity retirement fund and carer’s allowance.
Single parents can also qualify for credits, but only if immediately prior to being entitled to the single parent remittance, they were recipients of either maternity benefit, jobseeker’s aid or allowance, illness benefit, occupational injury, carer’s allowance, health and safety benefit, adoptive benefit, disability retirement fund or pre-retirement allowance.
There are also provisions for homemakers to receive credits. However, the calculation of such entitlements varies depending on whether you’re using the annual average or total contributions method.
Under the former yearly average system, benefits called homemaker credits were accessible although their utility was limited. Designed to not disadvantage women who dedicated up to 20 years for child-rearing (children less than 12) or looking after elderly incapacitated people, any full tax year away from the workspace for these responsibilities was simply disregarded.
Homemakers were also qualified to receive PRSI credits for the fragmented periods when their home-making responsibilities commenced or concluded.
For instance, if you began working at 16, then took a 20 year hiatus for childcare, before resuming work and retiring at 65, your annual average of PRSI stamps would be calculated over 29 years instead of 49 years, thus evidently beneficial.
Sadly, the benefits for homemaker’s were put into place from April 6th, 1994 onwards and weren’t retroactive, so if you were caring for children as early as 1979, this might feel more like a slap in the face rather than a benefit.
The opportunity to subtract the seven-year duration from April 1994 to April 2001, when you assert you were looking after children, is a possibility, contingent upon their age. Through the total contributions approach, each week of homecare, capped at a maximum of 20 years or 1,040 credits, could be accredited. Eligibility dictates you must be caring for your biological child aged 12 or below, an older child or adult requiring care or an elderly or disabled family member.
Homecare credits are accessible to anyone – regardless of gender – between the ages of 16 and 66, earning less than €38 weekly from part-time work, and not benefiting from another form of welfare payment, with the sole exception of carer’s allowance.
In contradistinction to the homemaker’s credit, homecare credits are applicable retrospectively for anyone who was born on or after September 1, 1946.
To elucidate the calculations, the annual average method affords a 50-year window where your PRSI contributions are averaged – spanning from your start of employment at 16 continuing to the concluding portion of the previous year, in addition to an “extra year” to offset the brief tax year in 2001 when Ireland transitioned from the UK’s April-April tax year to a calendar year system.
Should you qualify, a reduction of up to seven years from this 50-year range might be feasible, making allowance for between 1994 to 2001, when you were devoted to familial care.
Subsequently, you may find yourself distributing your 1,265 paid and attributed contributions over a 43 year timeframe. Given the preceding information, there is also the likelihood of you being entitled to a few additional credits, but assuming the contrary, these figures would put your average at 29.4.
Unfortunately, the department rounds this down to 29, being the closest whole number, positioning you at the peak of a pension payment tier where individuals with an average of 20 to 29 PRSI contributions per annum qualifies them for a weekly pension of €236.10.
If the count of your PRSI stamps per annum were one more, you would move up into the €249.30 weekly rate band set for those with an average PRSI count of 30 to 39. The new regulation entitling you to work until the age of 70 grants you the opportunity for a higher pension. However, for this you need to clock in 25 more weekly payments to move into this increased payment bracket. This could be achieved by working until the end of June, although it’s worth noting that it’s still not quite the same as the full State pension of €277.30.
Regarding the total contributions strategy, you were out of active work for 22 years, from 1979 to 2001. You might have been on single-parent payment for some of this period, but assuming you had a kid under 12 during the remainder, your credited contributions should be at or nearly at the maximum of 1,040. Together with your 938 paid contributions, this should qualify you for a pension payout at 95 per cent, just short of a full pension payout by €14.
To achieve the full amount for this computation, you would need to work and pay PRSI until December 2025. However, there’s an inherent unfairness, if my calculations are correct. If you’re paying more than €14 per week in PRSI, you’re effectively being detrimentally impacted by the Department of Social Protection’s denial to sanction you a State pension – at least until you reach the age of 70.
Unfortunately at that age, your pension will be locked into the lower amount, resulting in you being €14 out of pocket on a consistent basis. Effectively, you are incurring short term hardship in return for longer-term security. You should acquire a copy of your PRSI Contribution Statement from the department at MyWelfare.ie or your local Intreo office.
Providing my assumptions are accurate, I perceive no benefit for you in delaying your State pension claim beyond the conclusion of 2025. Although it’s important to note, there’s nothing stopping you from continuing to work after that if you choose to do so, but you won’t be required to pay PRSI beyond that point.
For the younger demographic, it’s important to know that from 2025 changes may come into effect to the rules, albeit marginal ones, as the State plans to gradually remove yearly averaging over ten years, making the total contributions calculation the default.
For any questions you might have, kindly direct them to Dominic Coyle at Q&A, situated at 24-28 Tara Street, Dublin 2, or you can use the email dominic.coyle@irishtimes.com. Please note that this column serves the readers and does not supersede expert guidance.