I do worry about the State Pension time bomb, which will affect my generation. The government will need to intervene sooner rather than later to sustain the system.
TWO RECENT STATE PENSION CHANGES
- Option to defer their State Pension.
- Phased-out approach of the yearly averaging calculation. Total contribution approach to fully take effect from 2034.
Currently, there is an option to defer the State Pension. You will be able to take your Pension at 60, or you can defer it at any age up to the age of 70.
If you defer the State Pension to a later age, a higher pension will be paid.
PENSION CLAIMED AT AGE CURRENT WEEKLY PENSION
66 €277.30
67 €290.30
68 €304.80
69 €320.30
70 €337.20
The Pension payable increases by 5% for each year you defer taking it. This is a long payback period.
EXAMPLE
Bob is 66 and entitled to receive a full State Pension. He is weighing up whether he should retire now or later. If he retires now, he will receive €277.30 per week. If he retires at 68, he will receive €304.80 per week. The average life span for a man is 82 years of age. In Bob’s case, it doesn’t make sense to delay his Pension. It will take him 23 years to break even if he deferred his Pension.
In most instances, it won’t make sense for people to delay taking their State Pension. If you haven’t reached full capacity to receive the maximum State Pension, you might opt to defer it, to increase your PRSI contributions.
FROM JANUARY 2025 THERE WILL BE A 10-YEAR PHASED REMOVAL OF THE YEARLY AVERAGE METHOD
During the 10-year transition period, pensions will be calculated by combining the yearly average method and the total contribution approach.
Starting in 2025 your pension rate of payment will then combine 90% of this yearly average rate with 10% of the TCA rate. The proportion accounted for by the Yearly Average Rate will then reduce by 10% over the subsequent 9 years until the pension calculation is fully based on the TCA method only.
IMPORTANT REMINDER OF HOW THE STATE PENSION IS CALCULATED.
Yearly average method explained:
You have made at least 520 paid contributions (10 years of contributions)
To qualify you must have enough social insurance contributions.
You must have:
- Paid social insurance contributions before age 56.
- Paid at least 520 social insurance contributions.
- An average of at least 10 weeks of contributions over the years since you first started to pay.
A person’s total social insurance PRSI contributions paid will determine the level of State Pension (contributory) they will receive. A person will need 40 years of PRSI contributions paid or credited to receive the full rate State Pension (Contributory). People with less than 40 years will receive a pro-rata fraction of the full rate. That is, people will receive 1/40th of the full rate state pension for each year of social insurance contributions.
Unfortunately, the State Pension will be continually eroded over time, as the government battle with sustainability. Ensuring you’re well-funded with Pension provision, can ensure you maintain a good standard of living well into the future.
If you require guidance or advice about your Pension, please contact me.
Thank you for your continued support.
