Summer jobs in childhood can come back to bite at pension time

I returned to Ireland at the age of 50 and have worked since. I will turn 66 in June 2024 and must retire from my job as per my employer. How much pension will I get in Ireland?

I am at a loss as I worked in Ireland at the age of 16 and 17 in a summer job and now am told that my pension is worked out for the age of 16. If I never worked and sat at home when I was on my school holidays I would get a full pension in Ireland. It is totally unfair. Can you help?

I will get a full state pension from the UK.

Ms C.C.

Welcome to one of the great inequities of the Irish State pension system. And, to be fair, it is one that the State is in the process of addressing.

Traditionally, Ireland worked out entitlement to the contributory State pension – ie a pension on the back of your PRSI contributions – on the basis of the average number of weekly PRSI payments you made every year over your working life.

Over time, it became very clear that this was unfair. First, it was only your Irish working life that counted and second it militated against women who were generally less likely to be in the workforce the whole time as the burden of family rearing and wider family caring fell to them.

So, if you work in Ireland for the first time just before you turn 56 and retire 10 years later, you will qualify for a full pension – currently €277.30 a week.

However, someone who first paid PRSI in their youth and then, because of family and caring commitments, travel or whatever, only worked for 10 years over their working life before turning 66, would have a working lifetime average of just more than 10, barely enough to qualify for the minimum payment of €110.80 a week.

Same time working in Ireland, but €166.50 a week worse off …and destined to be so for the rest of their life.

So yes, those two summer jobs do mess things up for you as, otherwise, your years working in Ireland up to retirement would have got you a full pension.

Unfair, yes, to a point. But then you getting a full Irish pension for about 16 years work here alongside a neighbour who would have had to work 40 years for the same pension would also have been unfair.

To try to address both of these inequities, the government in 2012 introduced a new way of measuring eligibility – the total contributions approach. The rule here was simple. You needed 40 years of social insurance stamps to qualify for a full pension. If you had less, the payment would be reduced on a pro-rata basis.

To allow for time out of the workforce in a caring role, the new system allows for up to 20 years of credited PRSI contributions for homecaring – either looking after children under the age of 12 or older children or relatives who were incapacitated.

As of now, you can use either approach. In fact, the Department of Social Protection does it for you, running your numbers through both systems to see which will yield you a higher pension payment.

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In your case, you have between 15-16 years of contributions since you returned to Ireland, depending on when precisely in your 50th year you started working here. As you say your earlier work was in a summer job over each of two years, we’ll add another six months for that.

So let’s assume 16½ years.

On the more modern total contributions approach, you would have 16.5/40ths, or 41.25 per cent of the full weekly pension. As the full pension rate is currently €277.30, that would give you a pension of €114.38.

On the older yearly averaging approach, your “working life” extends to 50 years because you first had employment subject to PRSI back when you were 16. So, 16½ years of stamps come to 1,014 PRSI contributions but, over 50 years, that averages at just under 20.3 stamps per year. That qualifies you for a pension of €236.10 a week on current rates.

On that basis, the department will see that you are better off under the old yearly averaging system, despite those two summers of work into your youth counting against you, and will pay you the €236.10 a week – €41.20 shy of the full pension. And, of course, you have your full UK state pension from your time working there which should add a further €330 or so to your weekly income before tax.

You will need the precise figures yourself, but the Department of Social Protection can also dig those up for you at mywelfare.ie or through your local Intreo office.

From next year, things change again as the State phases out yearly averaging gradually over the next decade. They will still look at which is better for you. If it is the total contributions approach, fine, that will be what you get. If, however, yearly average works better for you, in 2025 you will get 90 per cent of the yearly average rate you qualify for and 10 per cent of the lower amount you would have got under total contributions.

In 2026, it will be 80 per cent of your yearly average rate and 20 per cent of the total contributions rate, and so on. By 2033, if yearly average is better for you, you will get just 10 per cent of the yearly average rate and 90 per cent of what would be coming to you under total contributions.

So, anyone retiring after 2034 will have no choice: their pension will be assessed on the total contributions approach.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice