The State Pension: Contributory and Non-Contributory
The Irish state provides two types of pensions: Contributory and Non-Contributory. Both are designed to provide financial support to eligible citizens in retirement, but there are some key differences between the two programs.
The State Contributory Pension
The contributory pension is funded by the contributions that workers make to the Social Insurance Fund throughout their working lives. To be eligible for the contributory pension, a person must have made enough contributions to the fund, which is known as reaching the required number of contributions.
The current requirement is 520 paid PRSI contributions starting insurable employment or at least 260 full-rate contributions if you turned 66 before 6 April 2012, which is equivalent to ten years of contributions. A person must also have reached the age of 66, which is the current retirement age for the contributory pension.
The amount of the contributory pension that a person is entitled to is based on their average weekly earnings over their working life. The more a person has contributed to the Social Insurance Fund, the higher their pension will be. As of 2023, the maximum weekly contributory pension is €265.30.
The State Non-Contributory Pension
In addition to the contributory pension, some people may be eligible for the non-contributory pension. This is a means-tested pension that is available to people who have not made enough contributions to the Social Insurance Fund to qualify for the contributory pension. If married, in a Civil or co-habiting relationship, means testing will be carried out on the joint assets of the couple, even if only one person is applying for the means test. To be eligible for the non-contributory pension, a person must be aged 66 or over and have an income below a certain threshold.
The amount of the non-contributory pension is set at a flat rate of €254 per week from January 6th 2023, which is lower than the maximum contributory pension. However, because the non-contributory pension is means-tested, eligible recipients may also qualify for other forms of social welfare payments or housing supports.
The differences between each type
Means-Testing
One important difference between the contributory and non-contributory pensions is that the contributory pension is not means-tested. This means that even wealthy individuals who have made enough contributions to the Social Insurance Fund are eligible for the full amount of the pension. In contrast, the non-contributory pension is only available to people with low incomes and assets.
Duration of Residency
Another key difference between the two pensions is the length of time that a person must have lived in Ireland to be eligible. To qualify for the contributory pension, a person must have lived and worked in Ireland for at least 10 years. In contrast, the non-contributory pension is available to people who have lived in Ireland for at least 3 years.
Form of Funding
The contributory and non-contributory pensions are important sources of financial support for retirees in Ireland. The contributory pension is a form of social insurance that is funded by the contributions that workers make throughout their working lives.
The non-contributory pension, on the other hand, is means-tested and available to people who have not made enough contributions to the Social Insurance Fund to qualify for the contributory pension.
While the pensions may not provide enough income to fully support a retiree, they can help to supplement other sources of income such as personal savings or private pensions.
A Link providing further details on both State Contributory and Non-Contributory pensions can be found here
Author: Robert Smith
Robert Smith is Portfolio Manager of Compass Private Wealth with offices in Dublin and Cork.
Disclaimer: The above is generic in nature and does not constitute financial advice.