Planning your retirement income
by Denis Healy
 
 

As we are living longer and leading more active lives in retirement it is extremely important for all of us to plan for our retirement and ensure that we will have sufficient income to enjoy a comfortable retirement. I can recall, from pre-boom times, a previous employer’s word of advice to his employees being “Once your home mortgage is paid in full, the amount of the monthly mortgage repayment should be paid into a pension fund to help reduce the shortfall of income on retirement”. The effectiveness of this strategy has since been diminished due to two factors:

  1. Many of us will probably be close to 65 years of age before our mortgages are cleared (possibly 10 to 15 years older than previous generations;
  2. Individuals born on or after 1st January 1961 will be at least 68 years of age before receiving the state pension (based on the current criteria).

The State Pension (Contributory) of €248.30 per week would require a pension fund of circa €250,000. A private pension fund of €250,000 would cost an individual anywhere from €150,000 (claiming maximum tax relief) to €250,000 without tax relief, not taking into account the administration and management expenses of a private fund.

 

Methods used for calculating the amount of your weekly pension payment

Qualification for the State Pension is currently based on the average contributions method (along with other criteria) from the date you first started paying PRSI to the last full contribution year before you reach retirement age.

 

New arrangements (Homecaring periods) for post-2012 pensioners on reduced-rate pensions were recently introduced to take account of time spent out of the workforce caring for a child or adult.  These periods may help you to qualify for a higher rate of pension.  Up to 1,040 (20 years) HomeCaring Periods may be included as part of your pension calculation.  HomeCaring Periods include time you spent out of the workforce providing full time care for:

  • a child or children under 12 years,   
  • a child or children over 12 years who needed an increased level of care, or
  • an adult who needed an increased level of care.

The average contributions test will be replaced by the total contributions test for applicants applying after 31st December 2020, where the maximum pension payment (currently €248.30 per week) would be paid to individuals with 2,080 contributions (40 years).

 

Voluntary Contributions

Voluntary contributions allow you to remain insured once you leave the compulsory PRSI system. You may choose to pay voluntary contributions, provided you meet certain conditions if you:

  • are no longer covered by a PRSI scheme on a compulsory basis in Ireland,
  • are no longer covered by a PRSI scheme on a compulsory or voluntary basis in any other E.U. country,
  • are under age 66,
  • satisfy the scheme's qualifying conditions.

Importance of planning contributions

The new pension qualification rules require future planning PRSI Contributions and Credits to get as near as possible to the 2,080 weeks target.

The following are two examples where contributions planning would be beneficial to the individual:

    • If the maximum of 1,040 for all credits are already on record, “signing on” would be of no further use, Voluntary Contributions would be the better option,
    • If additional Voluntary Contributions are being paid and eventually reach the 2,080 contributions target, they should be discontinued.

Reviewing your contributions record

It is now essential for all individuals no matter what age or no matter what stage you are at in your career to get a copy of your Social Insurance record and future-proof your pension qualification.

You can now apply online for a copy of your record contributions record from the following link:

https://www.welfare.ie/en/Pages/secure/RequestSIContributionRecord.aspx

Or alternatively register for mywelfare.ie and have direct online access to your Welfare Insurance record on an ongoing basis.

 

It is also important to note that Welfare records can contain errors and omissions that will not be addressed until challenged or when a claim is made, therefore regular reviews of your record give you the opportunity to request the record to be corrected from any errors or omissions.

 

Regards

 

Denis Healy