What is the State pension system?

There are essentially two parallel State pension systems in Ireland, a social insurance system and a social assistance system.  The State Pension (Contributory) is paid to individuals who have paid the required Pay Related Social Insurance (PRSI) contributions during their working lives.  PRSI is a social insurance scheme providing benefits on sickness, unemployment, death and retirement in return for PRSI contributions.  The State Pension (Contributory) is currently paid from age 66, however the age from which it is payable is due to increase to 67 from 2021 and to 68 in 2028.  It is not means tested.  The State Pension (Non-Contributory) is a means tested social assistance payment and may be paid to individuals who are living in the State and who do not qualify for the State Pension (Contributory).

There are also widow’s and widower’s contributory pensions, contributory orphan’s allowances and invalidity pensions.

How is the state pension calculated and what factors may cause the pension to be enhanced or reduced?

State pensions in Ireland are “flat-rate” pensions, varying little in amount according to levels of salary.

The rate of State Pension (Contributory) payable to people who qualify for pensions from 1 September 2012 is based on the yearly average PRSI contributions paid, with the maximum personal rate standing at €230.30 per week.  Various increases on the maximum personal rate may be payable depending on the individual circumstances.  For example, increases may be payable where the individual is living alone or has adult or child dependants.  An automatic increase of €10 per week is paid when the individual reaches 80 years of

The maximum personal rate of the State Pension (Non-Contributory) in 2013 is €219 per week with increases payable in respect of those with adult and/or child dependants and individuals over 80 years.  As the State Pension (Non-Contributory) is means tested, the rate payable may be reduced where the individual is deemed to have some means to support themselves.

Is the state pension designed to provide a certain level of replacement pay to workers who have worked continuously until retirement age?

The State Pension (Contributory) is designed in this way, however the State Pension (Non-Contributory), while paid at a lower rate and means tested, is paid to those who do not qualify for the State Pension (Contributory) based on their PRSI contribution record.  The State Pension (Non-Contributory) is a social assistance payment paid to those whose income is below a certain level and is intended to ensure that individuals are provided with a basic level of income in retirement.

Is the state pension system under pressure to reduce benefits or otherwise change its current structure in any way on account of current fiscal realities?

In common with many European countries, the Irish State pension system is coming under increasing pressure in relation to issues such as population changes and the sustainability of Government finances.

The State pension system is unfunded and therefore operates on a pay-as-you-go basis.  The National Pensions Reserve Fund was established in 2000 with the aim of prefunding in part the future cost of social welfare and public service pensions.  The Government was tasked with paying a sum of approximately 1% of Gross National Product into the NPRF from 2001 to 2055 with drawdowns prohibited until at least 2025.  The Government was forced to use much of this fund to recapitalise the banks during the banking crisis and much of the amount remaining is earmarked for economic stimulus.

On 1 January 2014, the State Pension age increased to 66.  From 1 January 2021, the State Pension age will increase to 67 and from 1 January 2028 it will increase to 68.  This is being done in an effort to deal with the additional costs associated with the ever increasing longevity of an ageing population.

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