I arrived home to Ireland at age 56½ and started paying PRSI just before I turned 57. I will qualify for US social security at 67.
Will it be possible for me to qualify for any level of Irish State pension or will all my PRSI contributions be for naught?
Ms A.M.
It is never a waste paying PRSI. While access to the State pension is clearly the big incentive, there are also a host of other benefits that will be available to you as a result of paying the social insurance.
Under Class A, the PRSI most of us pay as PAYE workers, your payment will qualify you for jobseeker’s benefit should you lose your job. It will also qualify you for illness benefit or, if required, an invalidity pension, for maternity benefit, parents benefit or carer’s benefit among a range of other payments.
Another potentially valuable support is a special benefit for people forced by their employer to retire at 65. It will pay you a weekly sum and, importantly, credit you with a weekly PRSI payment for the 12 months until you hit 66.
Some classes of PRSI, including Class A, also entitle you to treatment benefit – free dental, optical and hearing care – though, confusingly, the rules governing how many “stamps” you need for these benefits change with age.
But clearly the pension is the big one. And the good news is that even though you have only started paying PRSI late in your working life, you will still qualify for at least a partial State pension purely on the basis of your Irish work record – as long as you have at least 10 years of paid or credited stamps.
So, if you started paying PRSI just before your 57th birthday, you will need to be working or paying stamps until just shy of your 67th birthday.
That would have excluded you until quite recently because people stopped paying PRSI at State pension age – 65 and, more recently, 66. But the Government made the rules more flexible, allowing people to defer taking the State pension until the age of 70 if they so choose. That allows people such as you to meet the minimum qualification requirement, the 10 years.
Before that – and still, if you do not accrue those 10 years of stamps – you could instead rely on your US social security record to ensure you qualified for at least a partial Irish State pension as the US is one of a number of countries with which Ireland has a bilateral agreement on social insurance.
But how much will you get? We’re going to focus here on what you will get on the basis of your Irish work record as you appear to intend to meet the local PRSI threshold for a pension.
It depends on a number of factors, including when precisely you start drawing down your pension. It used to be straightforward enough. If you met the 10-year threshold, you were paid on the basis of how many PRSI stamps you had paid on average each year over your working life.
For people such as you, who started paying PRSI later in life and just about met the 10-year rule, it meant you would get a full State pension. For someone drawing down the pension at 67, that is currently €302.90 a week, or €289.30 if you are still 66 when you start getting paid.
Of course, that was manifestly unfair on people who may have worked for many more years but had a lower annual average of PRSI payments because they took some time out of the workforce.
So the Government introduced an alternative total contributions approach, under which you needed 40 years’ contributions for a full pension and got a pro rata pension for anything less than that – as long as you met the 10-year minimum threshold.
For the past several years, the Department of Social Protection has been assessing your eligibility under both regimes and you were paid your pension on the basis of whichever one gave you a bigger payment.
However, from this year, the system changes again. Essentially, over the next 10 years, the State is phasing out the yearly averaging approach and moving everyone gradually to the total contributions method of assessment. Phasing is the key word here.
So, if you are drawing down your State pension for the first time in 2025, the Department will consider what you would get under the yearly average rule and apply 90 per cent of that figure. It will add to that 10 per cent of what you would qualify for under the total contributions approach.
So let’s crunch the numbers using your details – assuming that you will have 10 years of PRSI payments at some point this year.
Under yearly averaging, you would qualify for a full State pension and as you would be just shy of 67, the weekly payment would be €289.30. Ninety per cent of that is €260.37.
Under total contributions, your 10 years’ of stamps amounts to a quarter of the 40-year target – qualifying you for a payment of €72.33 a week. Ten per cent of this figure is €7.23.
Adding the two together, you would get a weekly payment of €267.60 – shy of the €289.30 “full” pension but not by a whole lot.
The State will continue to separately assess you under the total contributions system – which in this case gives you a State pension of €72.33 – and will pay your pension at whichever of the two rates is more beneficial to you. In your case, clearly, it is the blended payment.
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You don’t say in what year you started paying PRSI, and clearly that determines when you hit the 10-year threshold that qualifies you for the pension. If it were in 2026, the phasing would see you assessed for 80 per cent of the yearly average rate and 20 per cent of total contributions; in 2027, it would be 70/30, and so on until 2033 when it will be 10 per cent of the amount under yearly averaging and 90 per cent under total contributions.
From 2034, everyone will be assessed only under the total contributions approach.
So, yes, even leaving aside your US work record, your PRSI payments will qualify you for some form of a State pension, albeit less than the full weekly payment, as long as you have a minimum of 10 years’ payment which, in your case, means working (or getting PRSI credits or paying voluntary stamps) until just shy of your 67th birthday.
Given your US social security payment kicks in at 67, it looks as though you will be working until around then anyway unless you have some other private pension arrangement.
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It is worth noting, if you are looking to boost your retirement income, that you can start a private pension even at this late stage and qualify for tax relief of up to 40 per cent (assuming you pay income tax at that rate) on contributions of up to 35 per cent of your gross salary up to the age of 60, and 40 per cent of earnings thereafter.
Even without much time for investment gain, that’s still an option worth considering.
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 with a contact phone number. This column is a reader service and is not intended to replace professional advice
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