Most people’s pensions come from one or more of the following sources:

• State pension
• An occupational pension scheme
• A personal pension plan in the form of a Personal Retirement Savings Account or Retirement Annuity Contract.

State Pension will provide you with a basic level of retirement income, provided you qualify. There are two types of State Pension : Contributory and Non-Contributory (means tested). The full State Pension (Contributory) is €12,912 per year (or €248.30 per week) as of March 2019 for those under the age of 80, and €258.30 per week for over 80s. Qualification for this pension is based on your social insurance (PRSI) record. With some exceptions, employees, self-employed people and apprentices over 16 are insured through the payment of contributions. The rate of social insurance you pay is determined by your income and type of employment. If you are self-employed, only full-rate contributions can be counted.

The PRSI contribution week starts on 1 January each year, and in order to qualify for a State Pension (Contributory) you need to:

• have at least 520 paid contribution weeks ( 10 years) since entry into insurance, from employment or self-employment; must have entered insurable employment before attaining the age of 56 years;
• have a yearly average of 48 paid and/or credited contributions from the date of entry into insurable employment to the end of the last complete tax year preceding your 66th birthday (in order to get a maximum rate pension);
• for a reduced rate pension have a yearly average of at least 10 paid and/or credited contributions since the day you entered the workforce.

So how are the contributions calculated every year? Even if you only work on one day per week, once you work regularly throughout the year you will collect full 52 contributions. However, the amount of Contributory State Pension you’ll qualify for will depend on the average yearly contributions made by you throughout your whole working life.

Your ‘Yearly Average‘ is calculated as follows:

Yearly Average = Contributions and credits
                              Total contribution years

For example: If you started working in Ireland at the age of 18 and worked for 10 years collecting full 52 contributions. Then you did some cassual work for 5 years and only collected 39 contributions per year. Then for the next 10 years you were abroad and didn’t pay any contributions in Ireland. For the last 23 years you came back and worked full time again collecting full 52 contributions per year. Your average yearly contributions are now 40 and therefore you will no longer qualify for a full rate state pension and it will be reduced accordingly. The less your yearly average is the lower your pension will be.

However, if you worked and paid social insurance contributions in one of the 27 other EU countries or EEA states, those contributions will be taken into account when assessing your state pension eligibility. This rule also applies if you work in the United States, Canada, Australia, Japan, New Zeland and other countries that Ireland has bilateral social security agreements with. You can only receive your pension from the country where you now live or last worked once you have reached the legal retirement age in that country. If you have accumulated pension rights in other countries, you will only recieve those parts of your pension once you have reached the legal retirement age in those countries. If you do not qualify for a State Pension (contributory) based on your Irish social insurance record alone, contributions paid abroad may help you qualify for a reduced rate pension.

If you had to leave the workforce in order to provide full-time care to children up to 12 years of age or an incapacitated person, those years will be taken into account for pension purposes due to the Homemaker’s scheme. HomeCaring periods can only be used in a State Pension Contributory Agregated Calculation. A maximum of 20 years can be disregarded

Non-Contributory Pension is the means tested state pension for people who do not qualify for a contributory pension or only qualify for a reduced rate contributory pension based on their insurance record. The curent full rate of non-contributory pension is €237 per week for under 80s and €247 for age 80+ .

State Pension (Contributory) for the self-employed. Self-employed rate social insurance contributions are PRSI contributions at Class S and are payable if you earn €5,000 or more per year from self employment.  These contributions are counted as full rate contributions for State pension (contributory) purposes. If you earn less than €5,000 per year you can become a Voluntary Contributor and for the cost of €500 a year you will maintain your entitlement to a full pension. In order to become a voluntary contributor you need to have 10 years – or 520 – paid PRSI contributions.If you do qualify, your contributions can be paid as a lump sum before the end of the contribution year or by quarterly or half-yearly instalments during the contribution year.

Important Changes.There will be some very important changes in the way the state pension is being calculated from 2020! A Total Contributions Approach (TCA) for the State Pension (contributory) will be introduced from 2020, including a new “HomeCaring Credit”. The value of State pension payments will be maintained at 34/35% of the average earnings. Under TCA, a person’s contributory pension will be proportionate to the contributions they make, with fair regard for periods of child rearing, full time caring, and periods in receipt of social protection payments. A new “Automatic Enrolment” retirement savings system will be introduced from 2022 to support and encourage personal savings provision. It is a State sponsored supplementary employment related retirement savings system in which workers will be authomatically enrolled. It is intended that employee savings in this scheme will be supported by employer and State contributions.

Occupational pension schemes

Also known as company pension plans, these are set up by employers and can provide benefits including a tax-free lump sum (within certain limits), and pension income in retirement.

These benefits will generally be based on;

• your final earnings (final salary defined benefit schemes) or

• your average earnings throughout your career (career average defined benefit schemes) or

• the value of your pension fund at retirement (defined contribution schemes).

For the employee, occupational pensions are good news not only because they are a tax efficient way of saving for retirement, but also because the pension will grow quicker as a result of employer contributions rather than just relying on an employee’s own contributions. And for an employer who provides an occupational pension scheme to its employees, from a HR perspective it acts as a good incentive for new employees thinking of joining the company and as a means of staff retention and motivation for existing employees. Apart from benefits on retirement, pension schemes can provide benefits to dependants on death in service or death after retirement. If you are an employee, ask your employer if they have an occupational pension scheme in place for you to join.

For the employee, occupational pensions are good news not only because they are a tax efficient way of saving for retirement, but also because the pension will grow quicker as a result of employer contributions rather than just relying on an employee’s own contributions. And for an employer who provides an occupational pension scheme to its employees, from a HR perspective it acts as a good incentive for new employees thinking of joining the company and as a means of staff retention and motivation for existing employees. Apart from benefits on retirement, pension schemes can provide benefits to dependants on death in service or death after retirement . Check and see if your employer has such a scheme and whether you are eligible to join.

Personal Retirement Savings Account and Retirement Annuity Contract.

If there is no existing pension scheme available to you in your workplace you should consider making provision for your retirement and a PRSA may be the option for you. A Personal Retirement Savings Account (PRSA) is a long-term personal pension plan, designed to let you save for retirement in a flexible way. Most people can get a PRSA but they can be especially helpful for people with no pension provision. You can change employment and continue to use the same PRSA and you can switch from one PRSA to another at any time, free of charge. You can get tax relief based on your age for the contributions you pay into your PRSA. If your contribution to your PRSA is deducted from your salary by your employer, net pay arrangements will apply, that is, your tax relief is given at the time you pay the contribution. If you are a member of an occupational pension scheme or of a statutory pension scheme, you may pay to an Additional Voluntary Contributions PRSA. If your employer does not operate an occupational pension scheme or if certain restrictions apply to the occupational pension scheme, your employer is required by law to provide access to at least one Standard PRSA. This rule applies to all employers, irrespective of the number of employees and the status of those employees (i.e., whether they are full-time, fixed-term, part-time, contract, etc.).

A Retirement Annuity Contract (RAC) is the formal name for what is more commonly called a personal pension. A RAC is a particular type of insurance contract approved by Revenue to allow tax relief on contributions made by an individual. An RAC provides a tax-free lump sum, within certain limits, and a pension or other benefits at retirement. The value of the ultimate benefits payable from the contract depends on the amount of contributions paid, the investment return achieved less any fees and charges, and the cost of buying the benefits. RACs can be obtained directly from life assurance companies, and through financial advisers.