Self Employed and the State Pension ( CONTRIBUTORY)

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Self Employed and the State Pension ( CONTRIBUTORY)

Please see below a brief overview of the current rules on how you qualify for a state pension (contributory) – if you are self employed ( either sole trader, partner or certain Directors of limited companies). The most important matter is to make sure you are paying your ‘stamps’ and to confirm (every few years) what stamps you have paid.

Self employed and the state pension (extracts from citizensinformation.ie and welfare.ie)

Class S applies to self-employed people including certain company directors, people in business on their own account and people with income from investments and rents. It cover only a limited number of social insurance payments.

What are “self-employed contributions”?

Self-employed rate social insurance contributions are PRSI contributions at Class S.  These contributions are counted as full rate contributions for State pension (contributory) purposes.

  • If you were self-employed and started paying Class S PRSI contributions on the 6th April 1988, your entitlement to State pension (contributory) may be calculated based on your social insurance record from that date, provided you satisfy the other conditions for State pension (contributory).
  • If you started paying Class S PRSI contributions after the 6th of April 1988, your entitlement will be calculated from the date your first reckonable contribution was paid.
  • You must have paid self-employment contributions for at least one year before reaching the age of 66.

It is important to ensure all self-employment liabilities are paid on time, to avoid possible loss of pension payment.

To qualify for a State Pension (Contributory) you must be aged 66 or over and have enough Class A, E, F,G, H, N or S social insurance contributions.

You need to:

  1. Have paid social insurance contributions before a certain age
  2. Have a certain number of social insurance contributions paid and
  3. Have a certain average number over the years since you first started to pay

Number of paid contributions

If you reach pension age on or after April 6 2012, you need to have 520 full-rate contributions (10 years contributions). In this case, only 260 of the 520 contributions may be voluntary contributions.

However, if you were a voluntary contributor on or before April 6 1997 and you have a yearly average of 20 contributions, you may meet the requirement if you have a total of 520 full-rate contributions (of which only 156 need to be compulsory paid contributions).

If you reached pension age on or after 6 April 2002, you needed to have 260 full-rate contributions (effectively 5 years contributions but they do not need to be consecutive).

If you reached pension age before 6 April 2002, you needed 156 qualifying full-rate contributions (a total of 3 years but they did not have to be consecutive).

Note that social insurance contributions fall into the four groups below.

  • Full-rate social insurance contributions are PRSI contributions at Classes A, E, F, G, H, N and S or at the ‘ordinary’ rate before 6 April 1979.
  • Modified-rate social insurance contributions are PRSI contributions at Classes B, C and D (paid by civil and public servants).
  • Voluntary contributions are made by people under age 66 who are no longer covered by compulsory PRSI provided they satisfy certain conditions.
  • Credited contributions (‘credits’) are similar to the social insurance contributions you pay while employed and are usually awarded at the same rate as your last paid social insurance contribution. You may get credits when you are claiming a social welfare payment. Credits are not allowed after self-employed contributions (Class S).

Average number of contributions per year

You must meet the average condition. This is probably the most complex aspect of qualifying for a State Pension (Contributory).

Normal average rule

The normal average rule states that you must have a yearly average of at least 10 appropriate contributions paid or credited from the year you first entered insurance or from 1953, whichever is later to the end of the tax year before you reach pension age (66). An average of 10 entitles you to a minimum pension; you need an average of 48 to get the maximum pension.

Alternative average rule

This alternative average only applies to people who reach pension age on or after 6 April 1992.

It requires that you have an average of 48 Class A, E, F, G, H, N or S contributions (paid or credited) for each contribution year from the 1979/80 tax year to the end of the tax year before you reach pension age (66). This average would entitle you to the maximum pension. There is no provision for a reduced pension when this alternative average is used.

Rates

State Pension (Contributory) rates in 2016
Yearly average PRSI contributions Personal rate per week, € Increase for a qualified adult* (under 66), € Increase for a qualified adult* (over 66), €
48 or over 233.30 155.50 209.00
40-47 228.70 147.90 198.60
30-39 209.70 140.80 188.40
20-29 198.60 131.70 177.30
15-19 152.00 101.30 135.70
10-14 93.20 61.80 84.10

*Increases for qualified adults are means-tested payments (see ‘Adult dependants’ below).

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045 431642
Dooley Insurances 045 431642 Office Suite 2A, Millennium Park, Osberstown, Naas, Co. Kildare
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