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Sunday 17 December 2017

'Averaging rule' has made the whole situation unjust

'Many older women can find themselves punished by this system for taking time out of the workforce to raise a family. This is mainly because the weekly pension rate is calculated on the average number of contributions made over a working life' (stock photo)
'Many older women can find themselves punished by this system for taking time out of the workforce to raise a family. This is mainly because the weekly pension rate is calculated on the average number of contributions made over a working life' (stock photo)
Charlie Weston

Charlie Weston

Changes to the way the State pension payment is calculated were introduced in 2012.

Many people, especially women, reaching retirement age in the last few years are getting smaller pensions.

People who worked and made Pay Related Social Insurance (PRSI) contributions, or stamps as it used to be called, feel cheated. The State pension is calculated by adding the total number of PRSI contributions.

This figure is divided by the number of years between when you started work and when you are entitled to the pension.

But many older women can find themselves punished by this system for taking time out of the workforce to raise a family. This is mainly because the weekly pension rate is calculated on the average number of contributions made over a working life.

Before 2012, there were four payment bands used to calculate your State pension.

Crucial

Those with 48-plus yearly averaged contributions received the top rate. Those with between 20 and 47 contributions received 98pc etc.

In Budget 2011, then social protection minister Joan Burton increased the number of bands to six.

Crucially, band two was divided in three.

And those in the lowest band, with 20 to 29 averaged contributions, got just 85pc of the maximum payment.

Before this it would have been 98pc. Payments for what used to be bands three and four were reduced. The situation is made worse by the "averaging rule" used to calculate the number of contributions.

This is where the number of PRSI contributions is divided by the number of years between a person's first day of work and their retirement.

This means someone who worked for a few months in the 1960s and then went back to work in 2000 gets a smaller pension than someone of the same age who just started work in 2000.

Irish Independent

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