State Pension (Contributory)
Eligibility
The key requirement is that the client has paid and/or has credited1 PRSI contributions of the required Classes and average number by the time they are entitled to claim the State Pension (Contributory).
Entitlement to the personal rate of Pension is not means tested. Therefore, a client can have other private pensions and/or regular withdrawals from an ARF or PRSA and still get a State Pension. Neither is it a requirement to retire from work, to qualify for the Pension.
The main PRSI contribution classes which potentially qualify for the Pension are:
- A, most private sector employees, and public service employees recruited after 6th April 1995, and
- S, self employed sole traders, partners, and proprietary
The main category of workers who don’t qualify for the Pension are public service employees recruited before 6th April 1995, i.e. PRSI Class B, C and D.
The main PRSI contribution requirements for entitlement to the Pension are currently as follows:
- must have started paying PRSI before age
- must have paid at least 520 weekly contributions, of which no more than 260 of the 520 may be voluntary contributions (a lower limit for voluntary contributions applies if a person commenced making voluntary contributions before 6th April 1997). (See Voluntary Contributions below)
- must have an annual average number of 48 weekly contributions paid or credited for each contribution year from the 1979/80 tax year to the end of the tax year before reaching State Pension age. This qualifies for the maximum rate of
For those who don’t meet this test above, there is an alternative test of an annual average of contributions paid or credited from the year of first entry into the PRSI system or from 1953, whichever is later, to the end of the tax year before reaching State Pension age.
A yearly average of 48 or more contributions qualifies for the maximum rate of Pension, with a reduced rate payable for a lower average contribution record, down to the minimum rate of Pension (40% of the maximum Pension) for a yearly average of 10 to 14 PRSI contributions.
- must have paid the appropriate type of PRSI contributions, Class A or S
Social insurance contributions paid in other EU States, can also count towards meeting the required PRSI contribution conditions.
It is proposed to change the PRSI average contribution test to an N/30ths basis for clients qualifying for the State Pension (Contributory) from 2020 onwards, i.e. 1/30th of the maximum rate of pension would be payable for each full year of PRSI contributions paid or credited, with a full pension payable only to those with 30 years PRSI contributions paid or credited.
Voluntary PRSI contributions
The payment of PRSI contributions is generally compulsory for individuals aged between 16 and 65 and who are:
- an employee2, or
- self employed with a total income of €5,000 pa or
As a client’s potential entitlement to the State Pension (Contributory) and the rate of pension payable is highly dependent on their PRSI record, it is important that clients maintain their PRSI record as long as possible.
Clients who are made unemployed or go on illness benefit may be entitled to certain credited contributions, as outlined earlier, for a certain period.
However, in other circumstances, a client may have ceased to be covered by the compulsory PRSI system and not be receiving credited contributions, e.g. a self employed person who is no longer working and not caring for a child or incapacitated person. Such individuals can opt to continue paying voluntary PRSI contributions, provided they have paid a certain minimum number of PRSI contributions in the past. They must take up this option within 12 months of compulsory/credited contributions ceasing.
Such voluntary contributions count towards the PRSI contribution payment tests for entitlement to the State Pension (Contributory) and hence mean that someone who pays a voluntary PRSI contribution may be entitled to:
- claim the Pension, which without the voluntary contributions, they might otherwise not have been entitled to, and/or
- claim a higher level of Pension due to having a higher annual average of PRSI contributions.
The current annual rate of voluntary PRSI contribution is €500 pa for those who last paid PRSI at Class S, i.e. were last self employed, or at a rate of 6.6% of income (subject to a minimum of
€500 pa) for those who last paid PRSI at Class A.
State Pension Age
The age at which the State Pension, Contributory and non Contributory, is payable varies by the client’s year of birth, as follows:
| Year of birth | State Pension Age |
| – 1954 | 66 |
| 1955-60 | 67 |
| 1961 – | 68 |
Taxation
The State Pension is taxable as income for income tax purposes, but not for USC purposes. The Pension is paid gross and so the client must return it as income to Revenue, if they have a potential income tax liability.
Where an additional State Pension is payable to a qualified adult dependant of a client, it is still deemed to be the income of the client for income tax purposes.
However, the income tax exemption limit may, in some cases, exempt the State Pension from income tax where the client or their spouse/civil partner are over age 65.
A married or civil partnership couple are currently exempt from income tax where either spouse or civil partner is over age 65 and their total income (before allowances and reliefs but after any charges such as covenant payments) is less than €36,000. In the case of a single person over age 65, they are exempt from Income Tax if their total income is less than €18,000.
Items which count as income for the purposes of this limit are:
- The State Pension
- Private pensions
- ARF, AMRF and vested PRSA gross withdrawals
- Rental income
- Gross dividends
Gross deposit is in effect ignored for the income exemption limit, i.e. does not count against the limit.
Returns from life assurance policies and collective investment funds subject to exit tax at source also do not count as income for the purposes of the income tax exemption limit.