Is the State pension your fallback plan for retirement? You’d better get to grips with how much it’s likely to pay you, if so. Get your hands on a copy of your individual PRSI contribution statement – you might be surprised to learn your entitlement may not as big as you think.
Casting your mind forward to retirement and how you will fund your life can be a bit sketchy. Maybe you will have a work pension, or maybe not, or you plan to keep working until you’re at least 66 anyway – and sure, the State pension will plug the gaps, right?
The State contributory pension is the primary pension the majority of Irish workers will get – at least until the full benefits of auto-enrolment kick in. But how much you will be paid is based on the number of pay-related social insurance (PRSI) contributions you make during your working life.
Right now, the contributory pension is paid to those retiring at age 66 at a maximum rate of €299.30 a week, equivalent to €15,564 a year. That’s the figure you will hear every time the issue is mentioned. But that is only for those who have made the maximum number of contributions throughout their working life.
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The amount you receive could be as low as €119.60 a week – or nothing at all if you don’t have a minimum of 10 years’ worth of PRSI contributions.
For those who do not qualify at all, or who only qualify for a reduced rate because they have a lower number of PRSI contributions, the State non-contributory pension is a separate, means-tested payout. Its maximum rate for those retiring at 66 is €254 a week.
So not everyone getting “the pension” is getting the same pension, and not everyone getting the pension qualifies for the maximum amount.
The gap between those getting the full and the smallest pension from the State can amount to tens of thousands of euro over their retirement.
Reality check
Many of us blithely factor “the pension” into our calculations for retirement – all the while not appreciating that not all of us will be in line for the maximum amount.
This matters even for those who can expect to receive an occupational or private pension. The pension company’s projection of your retirement pot will likely also assume you stand to receive the maximum State pension entitlement in its calculations.
A Royal London Ireland survey of 900 workers published last month found Irish workers believe they will need almost €41,000 a year for a comfortable retirement.
‘While most employees retire earlier than they plan, those without occupational pension coverage face the greatest financial challenges. They not only retire earlier than expected, but do so with significantly lower incomes’
— Dora Tuda, ESRI
Almost all workers do not believe the State pension, at a maximum of close to €15,000 a year, will be enough to live on in retirement by itself, according to the survey.
And you might not be getting that amount at all. If you are counting on receiving the contributory pension at the maximum rate, a reality check might be in order. You’ll get this by ordering a “contribution statement” from the Department of Social Protection.
This is not a forecast of a person’s State pension entitlements, the department is at pains to say. But it does show your PRSI record to date, and right now. It will list every PRSI payment made by your different employers on your behalf down the years.
[ How big should your pension pot be for a comfortable retirement in Ireland?Opens in new window ]
Your pension payment, whatever it is, will come from the State’s Social Insurance Fund and that’s a separate element you need to factor in. Reform is needed to avoid significant future shortfalls in the fund down the line, says the Economic and Social Research Institute (ESRI). So you need to be aware that pension payment levels and your entitlement is open to change.
Gap years
Remember that year out you took to “find yourself” in your 20s, working a service job, getting paid “under the table”? There were no PRSI contributions from that.
Then there was the “quarter life crisis” in your 30s, where you took a year out to travel before going back to college as a mature student to retrain.
Kids came in your 40s, with some extended parental leave. And then there was the time your role was made redundant and a new job search was delayed to care for an ageing parent.
Requesting your contribution statement from the Department of Social Protection will be a trip down memory lane. The statement reveals the story of your working life – and crucially, how many PRSI contributions you made, or didn’t make, each year.
“Breaks” can mean gaps in your PRSI contributions, and gaps in your pension.
Where are my missing PRSI contributions? This is one of the most common queries, says the department, which can assist people to explain gaps, and sometimes plug them.
“It’s worth checking this at a younger age to make sure you have everything you should have,” says Kristen Foran, national sales director with Zurich Life.
Check the figures when you are in your 40s or 50s at least, so you have time to do something about it. Discovering a big shortfall at 65 can leave you with limited options.
It doesn’t help that, at the moment, there are two separate methods of calculating your State pension entitlement – and they won’t give you the same result. For peace of mind, you get the benefit of the one that pays you more.
But the general rule is that you need the equivalent of at least 40 years of PRSI contributions – essentially working without any breaks from the age of 26 to 66 – to get the full pension.
You must have a minimum of 520 full-rate PRSI contributions, equivalent to 10 years, to qualify for any contributory pension payment – and you must have paid PRSI contributions before the age of 56.
To qualify for the maximum rate, you need 2,080 or more contributions, equivalent to 40 years of full-rate contributions.
How much will I get?
How then do these two methods of calculating your pension work?
The first is the “yearly average method”. This divides your total PRSI contributions by the number of years between your first PRSI contribution and reaching pension age. A yearly average of 48 or more contributions entitles you to the maximum rate of pension.
If you started a holiday job at 16 and then did not work through college, those four to six years could affect your outcome.
The second method, the “total contributions approach (TCA)”, calculates your pension based on total contributions paid.
You need 2,080 contributions (40 years for a maximum payment). Below that, the pension is paid pro rata (as long as you have the minimum 10 years of contributions).
To work out what that looks like for you, you take your total PRSI contributions and divide them by 2,080. You then multiply that number by the maximum weekly rate of pension. For example, 1,560 qualifying contributions gives 75 per cent of the maximum rate – approximately €224.48 per week in 2026.
The total-contributions approach was introduced as a fairer method for people with broken work records – particularly women who took time out to raise children.
The system is moving to using only this approach from 2034; in the meantime, as the older yearly averaging system is phased out, your entitlement will be measured in two ways – under total contributions, and also under a blended system on both approaches.
For people reaching pension age in 2026, the blended calculation uses 80 per cent of the figure you are entitled to under the yearly average method, and 20 per cent from total contributions.
Mind the gaps
Many working lives are not linear. “Women in Ireland are 28 per cent less likely to be employed compared to men after having their first child,” says Dora Tuda, research officer at the ESRI.
This is about the European average. But, in Ireland, this penalty increases over time. Ten years after having a child, a woman in Ireland is almost half as likely to be employed as a man.
“In families with kids, men are not likely to become unemployed, and they are less likely to reduce their working hours than women. Women change their hours and stay at home,” says Tuda.
The penalty for women carries forward to retirement: men have a 35 per cent higher pension in retirement than women on average, she says.
There are now supports to make raising children easier. A person who stays at home to take care of children under the age of 12, or those who are in a full-time caring role, may be entitled to a range of supports including Home Caring Periods, the Homecarer’s Scheme and Long Term Carer’s Contributions.
Credits are also available if you received certain social welfare payments, such as jobseeker’s benefit or illness benefit. Those getting maternity benefit, paternity benefit, adoptive benefit and parent’s benefit will automatically be awarded credits too.
All of these boost your PRSI contribution record.
Ordering your contribution statement from MyWelfare.ie using your MyGovID will help you identify gaps and make sure you get any credits you are entitled to for them.
‘The State pension is okay, and it should be a base for your retirement, but will it be enough for anybody? Probably not’
— Kristen Foran, Zurich Life
Making voluntary PRSI contributions can also allow you to maintain your record if you have previously paid compulsory PRSI and then stopped doing so.
To pay voluntarily, you need to have at least 520 paid contributions (10 years’ worth) and you need to apply within five years of the end of the last tax year in which you paid compulsory PRSI or received credits.
Baseline
Of course, the State pension, even at the maximum rate, is not designed to fully replace your salary. It is regarded as providing basic subsistence income.
Yet, more than one in four Irish adults have no other retirement plan in place. The majority of this group (61 per cent) expect to rely on the State pension to fund their retirement, according to Competition and Consumer Protection Commission (CCPC) research last year.
“The State pension is okay, and it should be a base for your retirement, but will it be enough for anybody? Probably not,” says Zurich Life’s Foran. “The Government benchmarks the State pension at around 34 per cent of average earnings.”
A contribution statement with gaps can mean living on even less than that. Auto-enrolment, introduced last year, was a good idea, but it addresses pension coverage, not pension adequacy, she says.
This dependence on the State pension highlights increased vulnerability among those without private pension arrangements, says the CCPC. Affordability and putting it on the long finger were cited as the top reasons for people not making proper provision for their later years.
It’s never too late to start contributing towards a pension, says Foran, and government tax relief is generous.
In your 30s, you can get tax relief on up to 20 per cent of your earnings up to an earnings cap of €115,000 a year. In your 40s this rises to 25 per cent. Between the ages 50 to 54 you can get relief on 30 per cent of your earnings. From the age of 55 to 59 this rises to 35 per cent, and to 40 per cent for those aged 60 and over.
Retirement age
Employees with an occupational pension plan intend to retire earlier, at about age 63.5, compared to those without who say they will keep working until the State pension age of 66. That’s according to ESRI research published this year.
In reality, however, both groups retire at a similar average age of around 61, the think tank’s research found.
But there can be big differences in retirement income.
Individuals with occupational pension coverage have a median weekly retirement income of approximately €460, compared to €230 for those relying on the State pension.
“While most employees retire earlier than they plan, those without occupational pension coverage face the greatest financial challenges. They not only retire earlier than expected, but do so with significantly lower incomes, raising concerns about financial security in older age, especially for women,” says Tuda. Is
This difference is driven almost entirely by occupational pension income, as State pensions and benefits are similar across both groups, she says.
“Even if you do get the maximum [contributory pension] rate, ask if you think €300 a week is enough to live on?” says Tuda. “It amounts to €1,200 a month; whether that is enough is a very personal question.
“Does it assume that you own your own home outright, that you don’t have a mortgage or other financial responsibilities towards your family, and that money is only for yourself?” asks Tuda. “It’s important to ask these questions.”
Delaying drawing down your State pension beyond 66 up to the age of 70 can give you a bigger weekly payment, says Foran. If you wait until you are 70 for example, you can get up to €354 a week.
But someone who draws down their State pension from age 66 and dies aged 80 will ultimately end up getting more than someone who waits until 70 for the higher weekly rate, she says.
“You might want to stay working, and keep your PRSI stamps. It sounds nice, but it’s down to how long you are going to live, which none of us knows,” says Foran. “A bird in the hand is always worth more than two in the bush.”
Request a pension statement now, and think about how much more you may need in addition to the State pension for your later years.
Decisions taken while you are working will have a direct and lasting impact on your financial wellbeing in retirement.
