Rules are clear for means-testing State pensions

Q&A: Q:I am 61 and my wife is 63. She is Irish and I am English, and we have lived in Ireland for 20 years. Both of us are self-employed. We both lived in the UK for some time and have some pension-entitlement form there. I have been told that I will be entitled to €67 a week when I retire in 2016. My wife has already begun to receive a UK pension of €47 a week. What will happen when we both retire as to how these benefits will affect both our Irish state pensions?

Neither of us has a private pension arrangement. I have been told that I should just have enough PRSI payments to qualify me for a contributory State pension here; my wife’s hopes of a contributory pension have been undercut by recent changes to the number of contributions required for eligibility. (She has been told it’s no longer worth her while to pay any more PRSI contributions.)

As she will now have to apply for a means-tested State pension, will her UK pension come into play and lessen the amount she will receive? As a married couple, will my earnings, including my UK pension, also mean she will receive less?

Is there any form of leeway regarding how these decisions will be made? It seems very unfair that we have both paid PRSI over the years and now lose out at a stroke of a pen. Also, it feels grossly unfair that payments she has made over her working life will not now count towards her pension, despite the promise that they would.

Mr PM, Galway

AThe system for assessing eligibility for the State pension is pretty transparent, but to properly assess your position, I would need some information that you have not provided. You say you have lived in Ireland for 20 years and are both self-employed, but you don't say if your wife worked throughout those 20 years, what rate of PRSI she is paying. I will assume it is Class S full-rate contributions.

I am also unclear how many years of national insurance stamps your wife will have built up in the UK. As far as I can ascertain, the major change that could affect your wife’s eligibility to a State pension in Ireland is that she must have 520 full-rate paid contributions; previously the threshold was 260.

The new threshold amounts to 10 years of PRSI payments over a working life; the old one, just five years. Under EU law, you can also use contributions paid in other EU states – in your case, Britain – to reach the threshold. This is true both for you (which might improve your pension as Irish pension payment rates are higher than in the UK) and for your wife.

Thus, if your wife does not reach the threshold, she has been active in the workforce outside the home for less than 10 years at the age of 63.

The second threshold for payment of the State pension is that you should have an average of 10 paid or credited contributions each year over your working life – ie from the year in which you first worked until the end of the last full tax year before you hit the age of 66. This requirement has not changed under the revised rules to which you refer.

If your wife is obliged to look to a noncontributory state pension, her UK pension payment will be taken into account to determine if she meets the means-test requirement and then the level of pension to which she is entitled. The means test will take account of any income, savings or investments she may have, but not your owner-occupied home.

Her means will then, I gather, be determined to be half the total means of the family as you are married. I cannot see how you would be any better by both opting to travel the noncontributory route.

In terms of leeway on the rules, the answer is no. The rules are clear. If someone is suggesting that your wife should no longer pay PRSI Class S, the inference is that between now and the time she turns 66 would not suffice to bring her up to the 520 threshold required for eligibility.

You mention that your wife has been unemployed and ill for periods during her working life. Though self-employed now, she might have been entitled to national insurance or PRSI credits if she had been an employee during those periods. I understand the minimum threshold of 520 relates to paid rather than credited contributions.

This column is a reader service and is not intended to replace professional advice. Please send your questions to QA, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to dcoyle@irishtimes.com. No personal correspondence will be entered into.