I received a contributory widow’s pension in 2019. I will be 66 in April 2024 and my widow’s will go to the higher rate.
Now, because of the change in PRSI since the start of this year, I have learned I will continue to pay PRSI on my part-time job until I am 70 (I intend hopefully to work until 70). In order to be exempt from PRSI, I would have to be granted the State pension, but I am worried whether I will get the full rate. Here is a list of my contributions.
I joined the workforce in 1973/1974 at 16. I had 92 paid and 100 credited PRSI contributions up to 1979 when I became a homemaker. I received lone-parent allowance for part of that time.
I cared for my children in the home until I went back into the workforce in the short tax year, 2001.
On the Money: the personal finance newsletter from The Irish Times
‘There used to be queues round the block’: Staff outnumber shoppers four to one in one Grafton Street store
Winter sales: Do they still offer value in the era of year-round discounts?
Winter sales guide: From refund rights to mistakes to avoid, what you need to know before shopping
My total since starting work in 1974 up to 2023 is 938 paid PRSI contributions and 327 credited, for a total of 1,265 up to December 2023. Can you advise me on whether I will get a full pension?
Ms A.F.
You’ve had a very full life since you started working almost 50 years ago, though it seems the system has been conspiring against you at various points along the way.
And now you might be stuck again with a Hobson’s choice. If you continue to work until you are 70, as you would like to do, you are going to be obliged to pay PRSI on your earnings at 4 per cent. The only way to prevent that is to also apply for your State pension as people on the State pension do not pay PRSI even if they are also still working alongside drawing down the pension.
However, you are not likely to qualify for a full pension – at least until the back end of next year. And a quirk of the system means that even if you did want to go that route in order to escape the PRSI bills, you will not be able to.
Widow’s pension – more formally known these days as Widow’s, Widower’s or Surviving Civil Partner’s (Contributory) Pension – is paid out on the basis of either your PRSI record or that of your former husband.
While your PRSI record would have left you shy of the full payment, clearly your husband’s PRSI history was strong enough to qualify for the full weekly payment of €237.50 for someone under the age of 66. As you rightly note, from this April, when you turn 66, the payment will increase to €277.30, which is the same as the full State contributory pension.
I have spoken to the Department of Social Protection, and it told me that in circumstances where a widow’s pension recipient qualifies for contributory State pension at a lower rate, they will remain on the higher payment under the widow’s pension.
That would have been fine until the start of this year. Up to then, once you turned 66, you were no longer liable for PRSI. However, from January of this year the Government raised the age limit for PRSI liability to 70.
This was done alongside measures allowing people to defer drawing down the State pension until as late as 70 years of age in order to bolster their PRSI record and secure a higher weekly pension payment. But for people like you already in receipt of that maximum payment through the widow’s pension, it means you are stuck with PRSI.
“Those in receipt of Widow’s, Widower’s and Surviving Civil Partner’s Contributory Pension will be liable for PRSI on reckonable income until they reach the age of 70 or draw down the State pension (contributory),” the department said, neatly ignoring that it physically will not allow you draw down the State pension.
In practical terms that means you will, for now, receive the equivalent of the full weekly pension payment, just under the heading of widow’s pension rather than State pension.
But, as the department notes, you will benefit only for as long as you remain single. If you remarry or “cohabit” to use the legal term, the widow’s pension will no longer be payable and you will fall back on whatever State pension you would qualify for.
That is why the department refuses to lock you into the lower State pension you would qualify for now.
“This reflects the position with other social welfare payments available to those past the age of 66 and allows individuals to increase their contribution record for State pension (contributory),” it says, noting fairly that this could well be an issue for anyone who has “incomplete records and may no longer meet the qualifying criteria for the widow’s pension at a later stage due to cohabitation or re-marriage”.
So that brings us back to whether you qualify for a full pension. and, as I said towards the top of this answer, you do fall short at the moment. Assuming that is the case, those additional PRSI weekly stamps that you will be paying as you keep working would help get you towards a full pension.
Taking the pension now, if you are short of the full social insurance record – and even if the department allowed you to, which it won’t – would lock you in forever at a lower rate.
State pension
So, how much of a State pension would you actually qualify for right now?
There are two ways of calculating entitlement to State pension.
The first, known as yearly averaging, tots up how many weekly PRSI stamps you have paid over your career – or had credited to you – and then averages that out over your working lifetime, from the time you first paid PRSI until your retirement.
On this basis, you need an average of 48 PRSI stamps a year or more to qualify for a full State pension. Thereafter the payment reduces in bands.
The second approach is known as total contributions. This starts from the premise that you need 2,080 weekly stamps – 40 years’ worth – for a full State pension. Of these, half can be accounted for with credited payments. Anything less than that and you are paid a pension that is reduced proportionately against your PRSI record.
The good news for those of us who struggle to make sense of these things is that the Department of Social Protection will crunch the numbers using both formulas – and, indeed, a third alternative assessment approach which is a variant on the yearly averaging structure (this will not be relevant in your case). They will then pay you a pension in line with whichever formula works more favourably for you.
Unless, of course, your maximum level widow’s pension pays a higher rate than either, in which case you simply do not receive the State pension and remain subject to PRSI.
PRSI credits
PRSI credits apply in both methods of calculation. There are different situations that can lead to credits being granted against your work record.
In the first place, when you start work, you are entitled to PRSI credits dated back to the start of that tax year and for the previous two years. However, while you can use these extra two years for certain benefits, they are not eligible when it comes to assessing eligibility for the State pension.
Then there are more standard social welfare credits for people in receipt of certain payments. This includes things like maternity benefit, unemployment benefit, illness or disability allowance, an invalidity pension and carer’s benefit or allowance.
People in receipt of the single parent’s allowance are also eligible for credits but only if, immediately before qualifying for the single parent payment, they were getting one of the following: maternity benefit, jobseeker’s benefit or allowance, illness benefit, occupational injury, carer’s benefit or allowance, health and safety benefit, adoptive benefit, disability allowance, invalidity pension or pre-retirement allowance.
Finally, there are credits for homemakers. To further convolute things, these are calculated differently depending on whether you are using the yearly average or the total contributions approach.
[ Turning 66? New rules on PRSI could cost you moneyOpens in new window ]
Under the older yearly average approach, you could avail of what are called homemaker credits – though these are only of limited use to you. Essentially, in order not to penalise women who took any time up to a maximum of 20 years out to care for children under the age of 12 or older people who were incapacitated, any full tax year out of the workforce for those duties was simply ignored.
They were also eligible for PRSI credits for periods other than full years in which homemaker duties started or ended.
So if you started work at 16 and took 20 years out to care for children before returning to work and retiring at 65, rather than working out your average number of PRSI stamps annually over 49 years, they would do it over 29 years, which would clearly help.
However, homemaker’s only came in on April 6th, 1994 and was not retrospective so, for someone like yourself, who had been raising children as far back as 1979, if anything it only added insult to injury.
It might help discount the seven years between April 1994 and April 2001 when you say you were still caring for children but it depends on their age.
Under the total contributions formula, you can get a credit for every week of homecaring up to a maximum of 20 years (1,040 credits). To qualify, you must be caring for your own child who is under the age of 12, for an older child or children who needs care or for an adult in need of care, such as an elderly or disabled relative.
Homecaring is available to anyone – man or woman – aged between 16 and 66, who is earning less than €38 a week in part-time employment and who is not in receipt of some other welfare payment – with the exception of carer’s payments.
And unlike the homemaker’s credit, homecaring is retrospective and can be used by anyone who was born on or after September 1st, 1946.
Doing the sums
Using the yearly average approach, you have a 50-year window across which your PRSI stamps are averaged – the 49 years from when you started work at 16 until the end of last year plus one additional “extra year” to take account of the short tax year in 2001 when Ireland moved away from the UK April-April tax year and to a calendar year format.
If you qualify, you might be able to discount up to seven years from that to allow for the period from 1994 to 2001 when you were looking after your family.
That leaves you trying to spread your 1,265 paid and credited contributions over 43 years. It is also possible in light of the information I have given above that you may be entitled to a few more credits but, assuming not, those figures will give you an average of 29.4.
This will be rounded down to 29 as the department rounds the figures to the nearest whole number. That’s unfortunate as it puts you right at the top of a pension payment band. Anyone with an average of between 20 and 29 PRSI stamps per year qualifies for a pension of €236.10 a week.
If your average was just one higher, you would move into the €249.30 a week band for those with an average of between 30 and 39 PRSI stamps per year. Under the new dispensation that allows you to work until you are 70 to qualify for a higher pension, you need just 25 more weekly payments to edge into that higher payment. Working until the back end of June would get you there.
But it will still be well shy of the €277.30 full State pension.
Turning to the total contributions approach, you were out of the workforce for 22 years between 1979 and 2001. Granted, you were on single-parent payment some of that time but, assuming you had a child under the age of 12 for the rest, you should be at or close to the max for credited contributions of 1,040.
Added to your 938 paid contributions, this should qualify you for a 95 per cent pension, just €14 a week shy of the full pension payment.
Getting to the full figure on this calculation would require you to work and pay PRSI until December 2025.
However, and here is the unfairness, if my figures are right and if you are paying more than €14 a week in PRSI, you are effectively being penalised by the Department of Social Protection’s refusal to put you on a State pension – at least for the five years until you turn 70.
Of course, at that point you would be locked into the lower pension and so would be €14 a week worse off on an open-ended basis from there. So you are effectively enduring some pain now for security later on. You should get a copy of your PRSI record – the PRSI Contribution Statement – from the department at mywelfare.ie or your local Intreo office.
Assuming I am right, I see no advantage for you in putting off claiming the State pension beyond the end of 2025. There is nothing to stop you working beyond that – to 70 or beyond – if you want but at least you will not be paying PRSI.
Finally, for those who are younger, be aware that the rules are likely to change again from 2025 on, if only marginally, as the State phases out yearly averaging over a decade, with the total contributions calculation becoming the standard.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice
- Sign up for Business push alerts and have the best news, analysis and comment delivered directly to your phone
- Find The Irish Times on WhatsApp and stay up to date
- Our Inside Business podcast is published weekly – Find the latest episode here
