Every worker wants to be sure they can support a comfortable retirement as they reach the end of their working life. The financial security a pension may provide could make the last stretch of employment all the more enjoyable and there is great comfort in knowing that as you finish work you have a solid plan in place. State pensions as retirement plans are an enticing option for many who leave the labour force to settle into their twilight years. Ireland has a state pension scheme in place that is designed to provide some level of financial security for retirees, but as with anything related to finance, there are qualifying criteria and rules that must be met in order for someone to qualify. Similarly, there are several factors to consider before deciding if the state pension is the best pension package for you. How do you know if you are entitled to a state pension? Will the payouts be enough to assure you meet your needs and goals after retiring? This blog will explore the Irish state pension scheme in more depth so that you can set about getting your plan in place.
There are several types of pensions in Ireland, but the two main categories are public pensions and private pensions. State pensions like the old age pension, invalidity pension, and carer's pension fall into the public pension category while occupational pensions and personal pensions are both private pension options.
The state pension in Ireland is divided into two categories. The first is the contributory pension, which as the name implies, requires workers to have contributed to the system through their tax payments in order for them to qualify. The second category is the non-contributory pension, which does not require contributions and is based on means-testing.
To qualify for the full contributory state pension, you must have made a certain average amount of PRSI (Pay Related Social Insurance) contributions over the course of your working years. The newly implemented Total Contributions Approach takes into account an average calculation of the PRSI contributions that you have made over the course of your employment history. The Department of Social Protection (DSP) now uses this method, also known as the Aggregated Contributions Method, when analysing your application for a pension. If you reached pension age on or after September 1, 2012, your pension rate will be determined using these new methods.
For those who do not qualify for a contributory pension, there is also the non-contributory state pension. The main distinction is that the non-contributory pension is based on a means test in which the DSP assess your sources of income from your cash income to your capital ie. your shares, investments and value of savings. In order to qualify for the non-contributory state pension, you must be aged 66 or over and resident in Ireland, have limited means, and satisfy the habitual residence conditions.
Regardless of which state pension is more applicable to your employment situation and financial plans for the future, a pension is hugely beneficial and will provide steady week-to-week income during retirement. There are a substantial number of advantages to Ireland's state pension scheme that make it an attractive retirement option for many. The non-contributory state pension is paid regardless of employment status, meaning you do not have to be in work to qualify for payments. The contributory state pension is not subject to means testing, so your weekly payments will not be affected by your assets or other holdings.
Now that we have a good understanding of what the state pension is and how the Irish pension system operates let's read on to see if you meet the qualifying criteria needed to withdraw a state pension.
The Irish government has recently introduced a new method for determining a person's pensionable service following that they have met pensionable age on or after September 1, 2012. This is called the "Total Contributions Approach" and it means your pensionable service is based on the total average number of PRSI contributions you have paid from your first year until the end of the year before the state pension.
These payments are counted regardless of the class of payment. For example, if you worked for 10 years and paid Class A PRSI for eight years and Class S for two years, both periods would be used to calculate your total pensionable service. In order to qualify for a full pension under the Total Contributions Approach, you need to have made an average of 48 annual contributions or 2080 stamps. 520 stamps are needed at a minimum to get any part of the pension at all.
This approach is good news for the self-employed and for homemakers as any time spent out of the workforce raising children or providing care for a family member can now be used to calculate your total pensionable service. The Total Contributions Approach is fairer to those who, for whatever reason, have had fragmented employment histories and should overall result in more people finding the Irish state pension a viable option.
For example, you may still qualify for a contributory state pension if you are a homemaker through the new HomeCaring Periods Scheme which came into being as part of the TCA. If you give up work in order to provide care for a child under 12 years of age, or a disabled child or adult, you can receive a HomeCaring Period on your social insurance contribution record each week. You may include up to 1,040 HomeCaring Periods on your record.
As you can see the Total Contributions Approach has been hugely beneficial in terms of creating a more equal playing field and bringing a greater number of people within the remit of qualifying for Ireland's state pension. Simply put, pensions are one of the most significant social welfare programs in Ireland, and the government's new rules for qualifying criteria have made them more accessible than ever to the country's citizens.
Now that we've established the criteria for claiming the state pension, there are a number of things to think about while determining whether or not the pension is going to be enough for you and your family in your twilight years.
Seeing now how closely linked the state pension may be to your employment history it is critical to begin articulating your plans for retirement and asking yourself some key questions. The first and foremost is this; How much money do you think you will need to support yourself and your family during retirement? Considering the needs of our nearest and dearest is vital especially coming out of steady employment.
The average state pension in Ireland is €253.30 per week. This may seem like a significant amount but once you factor in the costs of things such as housing, food, travel and healthcare it can soon diminish.
Beyond the day to day costs, you may have larger plans for your retirement years. Do you have any expensive hobbies or travel plans? What is your lifestyle like currently and do you plan on making any changes during retirement?
These are all important questions that must be factored into whether or not the state pension will be enough for you. We at FitzGerald Flynn have years of expertise in the field of careful financial planning. We want to make sure your future is protected and we will work with you to create the right roadmap to suit you and your family's needs. Contact us today to set up an appointment.
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