Tony Gilhawley FSAI
Director, Technical Guidance Ltd.
01/02/2019
The Government announced in January 2018 a new alternative test for the State Pension, called the Total Contributions Approach or TCA. If this test gives a higher pension than the average test for those qualifying for the State Pension from 1st September 2012 onwards, they get the higher pension.
Source: The Financial Professional
For some the State Pension (Contributory), about €13,000 pa, will be an important source of income in retirement. Recent changes will help many, particularly women, to qualify for a higher pension when they reach their State Pension age.
The State Pension Age
The State Pension (Contributory) becomes payable as follows:
| Year of Birth State Pension Age |
| Up to and including 1954 66 |
| 1955 to 1960 67 |
| 1961 and later 68 |
Qualifying for the State Pension
The two main conditions to qualify for a State Pension (Contributory) are that you:
• must have started paying PRSI before age 56; and
• must have PAID at least 520 weeks, i.e. 10 years, of ‘reckonable’ PRSI contributions (Class A or S mainly) over their working life.
PRSI contributions paid by public service employees who joined the public service before 6th April 1995 are Class B and do not count for the State Pension, i.e. are not ‘reckonable’. In addition to paid PRSI contributions, some clients may have ‘credited’ PRSI contributions for a period when they were not working but in receipt of Social Welfare benefits like Jobseekers, Maternity and Illness Benefits.
The Current Average Test
Assuming you reach State Pension Age and get through the initial two hoops above, i.e. they started paying PRSI before 56 and have paid at least 520 weekly PRSI contributions of Class A and S, the pension you get is currently based on your annual average of reckonable weekly PRSI contributions from the year you first started working to the end of the year before your State Pension Age.
A full year working gets you 52 weeks’ PRSI contributions. To get the full State Pension you need a yearly average of 48 or more Class A and S PRSI contributions (paid or credited). The pension is reduced for lower average records:
Average weekly reckonable PRSI contributions over working life
State Pension (Contributory) personal rate pw (up to 25th March 2019)
| Average weekly reckonable . PRSI contributions over working life | State pension (contributory) personal rate PW (up to 25th March 2018) |
| 48 and over | €243.30 |
| 40-47 | €233.50 |
| 30-39 | €218.70 |
| 20-29 | €207.10 |
| 15-19 | €158.50 |
| 10-14 | €97.20 |
These rates will increase from 25th March 2019 when the maximum pension increases to €248.30 pw, with pro rata increases for lower average contributions.
The Government announced in January 2018 a new alternative test for the State Pension, called the Total Contributions Approach or TCA. If this test gives a higher pension than the average test for those qualifying for the State Pension from 1st September 2012 onwards, they get the higher pension.
Example
Joe was born in 1953. His State Pension age is 66, which is in 2019. He has paid and credited PRSI Class A (i.e. ‘reckonable’) contributions of 2,272 weeks from the year he first started working in a summer job in 1971 to the end of 2018. He went to 3rd level education for 3 years between 1973 and 1975 and hence has no PRSI contributions for those years.
His annual average of weekly PRSI contributions is: 2,272 / 48 years = 47.33 which is rounded to 47. On the table above, Joe will get a slightly reduced pension of €238.50 pw (2018 rates).
Gaps in PRSI Records
The current average test can be harsh on those with gaps in their PRSI record, e.g. women who gave up work for a period to mind children, and then went back to work. Because the test averages PRSI
contributions from the FIRST year working to the last year, significant gaps in between can drag down the average and hence the level of State Pension.
To fix this problem, the Government announced in January 2018 a new alternative test for the State
Pension, called the Total Contributions Approach or TCA. If this test gives a higher pension than
the average test for those qualifying for the State Pension from 1st September 2012 onwards, they get the higher pension.
Part of the new TCA is up to 20 years’ HomeCaring credits granted for periods spent caring for a child under 12 or an incapacitated adult.
2,080 is the New Magic Number
Under the new TCA test, a client needs 40 years of PRSI Class A and S contributions (paid or credited) at their State Pension Age to get the full pension; this means 2,080 weekly reckonable PRSI contributions paid or credited over their working lifetime.
Where you come to less than 2,080 you get a straight proportion. E.g. if you have 1,970 of reckonable PRSI contributions over their working life, you will get 1,970/2,080 or 94.5% of the State Pension.
The key change for women is that they can now qualify for up to 20 years of credited PRSI contributions, i.e. up to 1,040 weeks, for time spent minding a child under 12 or an incapacitated adult. These credited contributions count towards the 2,080 target.
This means a woman who paid 20 years’ PRSI (Class A and S) over her lifetime but gave up work to mind young children for 20 years, will get the full State Pension when they reach their State Pension Age.
The women who are likely to benefit most from this change are those who gave up work for a period prior to 1994 to mind young children.
Backdated to March 2018
Some, particularly women, who started to receive the State Pension (Contributory) from 1st September 2012 onwards, based on the average test, may now qualify for a higher pension from 30th March 2018, under the new test.
The Government plans to invite such retirees to contact the Department of Social Welfare in Q1 2019 to seek a review of their pension, and if they are entitled to a higher State Pension on the new TCA test, they will be upgraded to the higher pension backdated to 30th March 2018. This means some people will get a lump sum of arrears but remember this is taxable as income.
Those Hitting State Pension Age from 2020
Onwards It is planned that new State Pension (Contributory) retirees from 2020 onwards will get a pension based only on the TCA test outlined above, with the HomeCaring credits of up to 20 years for those who can qualify for them. If you look like you will fall short of 2,080 weekly PRSI contributions required to get the maximum State Pension, there may be a number of ways they can boost you PRSI record before reaching their State Pension Age and hence get a higher pension:
- if you are receiving certain Social Welfare benefits like Jobseekers and Illness Benefit you automatically get PRSI credits for these periods; where you received Social Welfare benefits like Jobseekers and Illness Benefit but your entitlement ran out, you may be able to continue their PRSI credits at no cost to them by ‘signing on for credits’. This means you sign on at your local Intreo office as available for and seeking work but get credited PRSI contributions even though you do not get a Social Welfare benefit at that time.
- Continue or start working, even part time. E.g.: – self-employed with income of at least €5,000 in a year, pay PRSI and get 52 weeks’ credits;– Employees earning at least €38 pw
- Take a withdrawal from an AMRF or ARF of at least €5,000. If under age 66 this will be liable to PRSI Class S of 4% but may provide 52 weeks Class S contributions.
- Pay voluntary PRSI contributions; in certain cases where someone retired early they may be able to continue their PRSI record by paying a voluntary PRSI contribution.
Check your PRSI Record
You can check their PRSI record by logging onto www.mywelfare.ie (after first getting a MyGov ID). You can request a printout of your PRSI record which they should get in the post within a week or so.
The two right-hand columns of the printed record are the relevant ones for the State Pension. You add the two together but the max total for any one year is 52.
Then add expected future reckonable contributions (paid or credited) up to State Pension Age. If the total of past and expected future reckonable contributions comes to over 2,080, you are likely to get the maximum State Pension. If less, you will get a proportion of the Pension.
| Reckonable Paid Contributions for Pension | Reckonable Credited Contributions for Pension |
| 52 | – |
| 48 | 4 |
| 53 | – |
| 52 | – |
| 52 | – |
| 52 | – |
| 37 | 15 |