The government published its roadmap for pension reform this past February. The system of which the government provides for pension income in retirement needs to be overhauled mainly because people are living longer and are going to be depending on a pension for a longer period of time than previous generations.
Also because there are currently anomalies in the design of the State pension contributory system that need to be addressed. (please see my State pension blog previously posted)
And finally, because Ireland lags behind other developed countries when providing for retirement with personal and occupational schemes and we will not be able to maintain our current standards of living in retirement
The government has identified 6 strands of action that need to be addressed over the next 5 years to help address the current pension shortfalls.
Strand 1: Reform of the State Pension
Strand 2: Building Retirement Readiness ( A new Automatic Enrolment Savings System)
Strand 3: Improving Governance and Regulation
Strand 4: Measures to support the operation of DB schemes
Strand 5: Public Service Pension Reform
Strand 6: Supporting Fuller working lives
Today I am going to take a quick look at the reform of the State pension since I discussed the old State pension in a previous blog.
The government as of this past March have moved to a Total contributions approach. What this means is your take the no of weekly PRSI contributions that you have made over your working life will determine the amount of State pension that you will receive. For example, if you worked for 40 years and have made 2080 contributions (40×52) then you will get the full State pension. If you have less then your pension will be reduced pro rata.
Under the previous system, it was based on yearly averaging you had to have an average of 48 yearly contributions based over your working life to become entitled to the full pension. And this averaging started whenever you started your first job even if part-time as a teenager. It was an unfair system because people with gaps in their PRSI record because they take time out to raise a family, to go abroad or for any other reason, lost out.
The government will be introducing this new system for all pensioners from 2020 but until then people can choose whichever system they prefer so that they do not lose out. The Government is also introducing Homecaring Credits.
These will allow people to count up to 20 years spent taking care of their family as part of the 40 years’ pensionable service they will need for a full State pension.
Any questions at all please feel free to get in touch.