Shannon Chamber welcomes the reforms in the PRSI system announced this week by the Minister for Social Protection Leo Varadkar which will make it easier to take a career break without losing your State pension entitlements.
“This is an issue we highlighted in our pre Budget 2017 submission to Government and it is good to see action now being taken in this regard,” stated Chamber CEO, Helen Downes
The announced reforms will also benefit self-employed people, those who move abroad temporarily, and people who take early retirement.
The reforms make it easier for people to make voluntary contributions under the PRSI system. They are designed to ensure that more people who take career breaks, early retirement, move abroad temporarily, or experience a bad year in self-employment can protect or improve their right to a contributory State pension, and a pension for their spouse or child’s guardian should they die prematurely.
Speaking about the measure, Minister Varadkar said: “At the moment, if you pay into the PRSI system for long enough, you become entitled to certain benefits without having to pass a means-test. These include the State Pension Contributory when you reach 66 and the Widows/Survivors Pension for your partner if you die before the age of 66.
“However, in many circumstances, you can lose this entitlement or have it reduced if you leave work and stop paying PRSI for a number of years. Voluntary contributions allow you to prevent this from happening. I am making it easier to make these voluntary contributions by given people up to five years to decide to do so instead of just one.
“The main beneficiaries will be self-employed people who have a bad year or a few bad years and don’t pay PRSI in those years, people who take early retirement who might otherwise have their State pensions reduced, people who go overseas for a few years and do not pay into an equivalent system, people who retire early due to ill-health, and also parents who decide to stay at home.”
These changes build on the other social insurance reforms the Minister has announced since he came into office. They include the introduction of Paternity Benefit last year as well as a range of important measures he announced on Budget Day.
From next month the self-employed will have access to the treatment benefit scheme which includes free eye and dental examinations, and contributions towards the cost of hearings aids. Treatment benefit entitlements will also be extended from October 2017 to provide further dental and optical benefits both for employees and the self-employed.
Even more significantly, self-employed contributors will be eligible for the Invalidity Pension from December 2017. For the first time, this will give the self-employed access to the safety-net of State income supports if they become permanently incapable of work as a result of an illness or disability without having to go through a means test. This is a real advance in the level of cover available to the self-employed.
The Minister plans to continue modernising and enhancing the social insurance system and is looking forward to making further improvements in future Budgets.
Sample Case Studies
Geraldine is a self-employed music teacher and was paying Class S PRSI up to and including 2012. Because of ill health, her annual income has fallen to below €5,000 in recent years. (Self-employed people with annual income of less than €5,000 do not pay PRSI) The non-payment of PRSI in those years could adversely affect the rate of Geraldine’s future entitlement to a State Contributory Pension. She was not aware that it was possible to pay Voluntary contributions for these years and it is not possible, under the existing rules to apply. Under the change being introduced,Geraldine can now pay voluntary contributions for some or all of the years from 2013 onwards, in order to maintain the continuity of her PRSI record for pension purposes.
John takes a career break from his employment in the Bank, to help his daughter settle her young family in New Zealand. He will not work in that country. Although he intends availing of a twelve month career break, he has the option of extending it for an additional 4 years. John is concerned that availing of a career break period, could adversely affect the amount of his future pension. The extension of the application timeframe for voluntary contributions, means that John does not have to make a decision in the very short term about whether he should pay voluntary contributions. He can instead delay that decision until his plans become clearer. If John decided after 3 years abroad, that he wanted to pay voluntary contributions, he can apply at that point. Upon his admittance to the scheme, John can decide if he wants to pay voluntary contributions for all 3 years of his absence, or if he wants to pay for a fewer number of years. The new rules give John the option of deciding from when he wants to start paying voluntary contributions. As the contributions are not compulsory, he can either decide to pay them, or not.
Sean, now aged sixty two, took an early retirement package and moved abroad at fifty eight years of age. When retiring Sean was not aware of the future impact of his retirement, in terms its impact on level of payment of his pension entitlements. Some 4 years after he last worked, Sean applies for, and is admitted as a voluntary contributor. Under the former rules for Voluntary Contributions, Sean would not have been afforded that opportunity, because he allowed more than twelve months elapse before he applied to become a voluntary contributor. However, under the new rules, Sean is well within the new sixty month time limit and he can be admitted to the Scheme.
Lucy is 50 and has been diagnosed with a chronic, life limiting illness, which has forced her retirement as a Civil Servant three years ago. Lucy is married to Paul who is the primary home carer for their three dependent children. She is concerned that as Paul has not worked for the past 12 years, his rate of State pension will be very low. Lucy can apply for and pay voluntary contributions to maintain the continuity of her PRSI record and thus safeguard entitlement to a Widow’s or Widowers’ Contributory Pension for herself and Paul in the event that either of them die early.