The State pension (contributory) is a very valuable benefit and is the bedrock of the Irish pension system. Therefore, it is important to ensure that those qualifying have made a sustained contribution to the Social Insurance Fund over their working lives. This is particularly important given the challenges to the future sustainability of the State pension, with increased numbers of older people living longer.
When assessing whether an individual is entitled to a State pension (contributory), and to ensure that they can maximise such entitlement, all contributions (whether paid or credited) from when they first enter insurable employment until pension age are taken into account.
To qualify for a state pension (contributory) a person must -
- have at least 520 paid contributions and
- satisfy a yearly average condition (a yearly average of 48 contributions paid or credited is required for a full rate State pension (contributory), and reduced rates of payment may be payable for pensioners with lower averages).
Once over 16 years of age, the date a person enters into insurable employment is the date used for averaging purposes.
In the case of mothers on maternity leave, credits are awarded to workers who go on maternity benefit. Furthermore, the homemaker’s scheme was introduced in 1994 to make qualification for State pension (contributory) easier for those who take time out of the workforce for caring duties. The scheme allows up to 20 years spent caring for children under 12 years of age or incapacitated persons to be disregarded when a person’s social insurance record is being averaged for pension purposes.
The State pension (contributory) is intended to reward those who have paid PRSI during their working lives, and/or have remained engaged with the labour force when they were not in a position to make such paid contributions (e.g. due to unemployment or illness). If a worker becomes unemployed or incapable of work, s/he will generally be awarded credited contributions for the duration of their social welfare claim(s), or they may sign for jobseekers credits and these credited contributions are also used in the calculation of the yearly average for pension purposes.
If a person decides to retire at 53, and they do not qualify for a social protection payment nor sign for jobseekers credits, they may qualify for a lower rate of State pension (contributory) than a person who worked up to their 66th birthday. Alternatively, they may qualify for the means-tested State pension (non-contributory), the maximum personal rate of rate of which is €219.
The yearly average test has been in existence since 1961 when contributory pensions were first introduced. As stated in reply to question no. 54 of 10 December 2014, it is planned to replace this method of calculating pension entitlements with a ‘total contribution approach’. The proposed date for this reform is 2020, but this may be subject to change.
