This week, I’ll explain the PRSI system and look at the importance of making regular payments to get your average PRSI contributions in order. Next week, we will look at case studies. If you have queries email pyoung@farmersjournal.ie

The main points surrounding the new PRSI rules are:

  • • It will allow more people working on the farm to make contributions.
  • • It does not change anything for farmers’ partners in existing partnerships. Farmers’ spouses who are getting paid by the farmer are still excluded from making PRSI contributions.

    • For farmers and their wives/partners, the main return on paying PRSI contributions is eligibility for the state contributory pension when they reach 66 years of age (or later in the future). Currently, where both spouses qualify for a contributory pension in their own right, they will receive a maximum combined payment of €460.60 per week. Where only one spouse qualifies for the state contributory pension, they will get €230.30 per week – but may be entitled to an additional payment if they live with a “qualified adult” (see table 1). This is means tested and might be difficult to get if the partner has assets in their name.

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    Where a husband and wife work together in a partnership, each can make PRSI contributions in respect of their share of the partnership income. In the past, many spouses worked on the farm in informal partnerships and only one spouse declared income and paid PRSI.

    It was a mistake that someone put right, by getting the Department of Welfare to accept there was an informal partnership and the years for which a wife was farming were recognised. These years are counted towards establishing whether the spouse was entitled to the state pension in their own right. The latest change makes it easier for farmers’ partners as they do not have to prove the partnership. They only have to allocate income in their tax returns. However, it is not retrospective and only applies from this tax year. Put simply, there are three parts to unlocking the state contributory pension. The first is the starting point of your entry into the system.

  • 1. Entry into insurance: Your entry into insurance means the date on which you first started to pay social insurance. If you started to pay full insurance after 6 April 1991, it’s taken as the time you first paid any social insurance. The rules for before 1991 are complex, especially when full social insurance was paid for some of the time and modified at other times. There are also special entries into insurance rules for self-employed people. If you started to pay self-employed contributions on 6 April 1988, and had previously paid employee insurance at any time, then the date of entry into insurance can be either 6 April 1988 or the date on which you actually first paid insurance, whatever is to your advantage.
  • 2. Number of paid contributions: If you reach pension age on or after 6 April 2012, you will need to have 520 paid contributions (10 years of paid contributions). In this case, no more than 260 of the 520 contributions may be voluntary.
  • 3. Average number of contributions per year: The average has become much more important with the introduction of more tiers in the payment system (see table 1). Under the normal average rule you need an average of 48 contributions (paid or credited) for each contribution year to get the maximum state contributory pension. You must have an average of at least 10 entitlements each year to get the minimum pension.

    • Pay Related Social Insurance – what is it?

    People in employment pay contributions to the Irish Social Insurance Fund. The contributions depend on your earnings and occupation. That’s why it is called Pay Related Social Insurance (PRSI) contribution. There are 11 different PRSI classes. These are: A, B, C, D, E, H, J, K, M, S and P. The social insurance payments to which you may become entitled depend on the PRSI class you are in.

    Class A is the most common PRSI class, as most employees in Ireland pay PRSI class A. It applies to people in industrial, commercial and service-type employment, who are employed under a contract of service with pay of €38 or more per week from the employment. It also includes civil and public servants recruited from 6 April 1995. Farmers are self-employed people and come in under class S. Class S contributors are not entitled to the full range of social insurance payments – the main one they are ruled out of is job seekers benefit.

    First step to get covered

    Talk to your accountant before you submit preliminary tax returns for 2014. Before that, get a statement of contributions to identify exactly what contributions have been made, for and by you, to date. This can be obtained by contacting PRSI records at the Department of Social Protection, McCarter’s Road, Ardarvan, Buncrana, Donegal. The telephone number is 01-4715898, or lo-call 1890-690690. If there are missing contributions, they will ask you to provide P60s or P45s from that period. If you do not have these documents, they can be obtained by contacting your previous employer. Even if he/she does not have them, you are asked to write in a letter identifying when the contributions were missed.

  • In brief

    • To get the minimum contributory state pension you must start paying PRSI before you are 56 to hit the 520 contributions required.

    • You need to have an average of 48 contributions per year.

    • Get a statement of affairs to check your own situation.