As the land of saints and scholars, Ireland is well known for its cultural contributions to the world. But did you know that we can also claim the greatest financial safety net, the pension, as one of our inventions? Way back in early medieval times, the observance of Brehon Law meant that people had a legal financial responsibility to the care of their elderly relatives (as well as those who were sick, deaf, blind or not of sound mental state). Today, with over 71,000 pension schemes operating across Ireland, John Lowe The Money Doctor has everything you need to know to help you plan for your future financial security.
There are two broad types of pension scheme: the state pension and private pensions. The state pension itself is broken into two types: contributory and non-contributory. The contributory state pension exists with the aim of providing a basic living income to the older generation. You are automatically entitled to claim this pension once you reach the age of 66 – 67 in 2021. It is amassed from PRSI (Pay-Related Social Insurance) contributions and is afforded to everyone in Ireland who has paid a minimum of 520 PRSI contributions, starting before the age of 56. Although not means tested, the amount paid varies based on the average number of annual PRSI contributions made over your lifetime (NB: you must have made an average of 10 contributions per year to qualify for the minimum payment) which is particularly discriminatory against stay at home partners choosing to look after their children – an anomaly that MUST be rectified legislatively sooner than later.
The non-contributory state pension differs in that it is means tested. You must also satisfy some certain other criteria before qualifying for this pension: you must live full time in Ireland, have a PPS number and apply for the pension three months before your 66th birthday. You can apply via the Social Welfare Services Office here: http://www.welfare.ie/en/Pages/248_State-Pension-Non-Contributory.aspx#How_to_apply4
However, it’s important to note that Ireland’s population is aging rapidly and that this will have an impact on your future. By 2026, more than 16% Irish people will be making the weekly trip to the post office; but by 2050, 1.8 million of us will be of pensionable age – and if you think the State will be able to afford to subsidise that many of us, even at the current weekly rate of €243.30, you’re in for a harsh dose of reality.
This is where private pensions come in. They’re really a personal insurance policy against the uncertainty of your financial security in old age. While it might be difficult at 30 to find the money to put away each month, it will be much tougher at 70 – the age the ERSI wish the government to extend the retiring age. So do your research and have a serious think about prioritising where you put your earnings.
Perhaps the best known private pension is the Personal Retirement Savings Account (PRSA), which can come in Standard and Non-Standard forms; charges on Non-Standard PRSAs are higher as they are not capped, so make sure that the pension provider or broker you are considering provides both options and explains each to you. You can also choose to purchase a Retirement Annuity Contract. This is another type of personal pension, available to those in non-pensionable employment (i.e. a job without an occupational pension scheme) or those who are self employed.
Last is the occupational pension, which is facilitated by your employer and can be contributory (where your employer may also add to or match your contribution) or non-contributory. The contributory pension scheme, which is now more common in larger companies, is becoming less and less common in SMEs – so if your employer contributes to your pension, think long and hard before upping and moving jobs! Remember also to check your pension performance EVERY year – it’s to your benefit.
As with all major financial decisions, take your time before committing to any scheme – and if you have any questions, drop me a line..