Taking time out for children can hit your State pension: Here's how to close the gap
pension
is currently worth about €15,000 a year, and is one of the few welfare payments governments always try to increase in the annual budget.
And yet, women still lag behind men when it comes to receiving the weekly payment at the maximum rate. This means a poorer life in retirement.
'All the
inequalities
women face throughout their working life, such as lower average earnings and the gender pay gap – all of that is exacerbated in older age,' says Donal Swan, women's economic equality coordinator at the National Women's Council of Ireland (NWCI).
Indeed, while the gender pay gap may be of the order of about 10 per cent, the gender pension gap remains 'stubbornly' high, at about 30 per cent. This means that the typical woman then has 30 per cent less of an income in retirement than a typical man.
READ MORE
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The motherhood penalty: 'Once they're in bed, you log back on at 9pm or 10pm and work'
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There have been positives on the pensions front of late, such as the introduction of the long-term carer's contributions scheme, which makes it easier for those who have been caring for long periods to qualify for a state pension.
It is changing, says Tony Delaney, founder and CEO of SYS Financial, who notes that participation rates of women in the workforce have increased, which has a corresponding impact on state pension coverage rates.
Moreover, the Government has committed, in the recent programme for government, to introducing changes to support women who fall outside the existing schemes to qualify for a state pension.
But, while such tinkering is positive, 'it doesn't deal with the complexities of women's lives' says Swan.
Time to take some action then, to try to narrow this gap and ensure a brighter financial future for yourself.
1. Check your entitlement
The state pension is currently paid out at a weekly rate of €289.30. This means that if you qualify for the maximum rate, and you claim it from 66 until the age of 91, it will be worth about €376,000 to you.
If you don't have enough contributions, you might qualify for a non-contributory pension (paid at a top rate of €278) but this is based on a means test, so will depend on your household's income. And it might be paid at a rate substantially less than the top rate. Figures from the Department of Social Protection show that it's still primarily women who get this payment. Indeed as of June 30th, there were 58,688 female recipients of this pension, or 59 per cent of claimants, compared with 40,993 male recipients.
It's clear then, that regardless of the rhythms of your working life, you need to maximise your chances of getting this payment at the top level.
It's worth keeping track of how your contributions are stacking up. You can do this by requesting your record through
MyWelfare
.
2. Get 40 years of credits
This year marks the first time that pensions can be calculated on a total contributions approach (TCA). Introduced on a phased basis, it will supercede the current averaging approach by 2034.
So, if you were born after 1968 (aged 57 or less), your pension will be based on the TCA. But what will this mean?
Well, in short, to qualify for a full state pension under the new regime, you will need 40 years' contributions (2,080 or more PRSI contributions). In other words, you need to be working from the age of 22 through to 62 to qualify.
And, while you can get credits for periods spent in the home caring for children (through the
HomeCaring Periods
scheme, for example; see below), such contributions can't exceed 20 years.
So, let's say you have just 20 years of contributions – then you'll qualify for 50 per cent of the maximum pension, or €144.65 a week instead of €289.30, a substantial decrease on the top rate.
The NCWI would like to see the time period lowered, so that you can access the full state pension based on 30 years of contributions.
'We're hopeful we can keep pushing Government and the Department [of Finance] to keep making changes where possible, to expand people's access to this,' says Swan.
3. Make sure you get credits for time out
If you take time out of the workforce (for maternity or parental leave), your employer may continue to make pension contributions on your behalf.
But what happens to your state pension?
When it comes to the state pension, if you're not getting paid while on leave, then you won't be paying PRSI, which means you won't be building up credits for your state pension.
Under the new regime, however, parents who take time out to care for their children can keep their PRSI record intact by applying for credits under the aforementioned HomeCaring Periods Scheme.
If you get maternity benefit, you will get credits automatically. However, as this ends after 26 weeks, if you take a further 16 weeks' unpaid leave you will need to get your employer to complete the application form for maternity leave credits when you return to work.
When it comes to parental leave, you should also be entitled to credits – but, again, you have to make sure your employer applies for these. Parents can take up to 26 weeks of parental leave, which is typically unpaid, for each child up to the age of 12.
4. Time out is good – but get back in the workforce if you can
So far so good, but complications with getting the credits can arise if you subsequently opt to take a longer period of time out of the workforce.
This is because, to qualify for a state pension – even at a reduced rate – you will need at least 10 years' paid contributions, and your home caring years can't exceed 20. And to get the full pension, you will need 40 years of contributions.
So then, it may make sense for many women to return to the workforce once their children are grown up, to try to meet the requirements for a state pension.
5. Think about topping up your state pension
Many stay-at-home parents turn to ad hoc work to boost their income while looking after their family – running a house account on Instagram is one such route, as is running a play group or after school activity.
However, while family friendly, it's important to note that such earnings may not be working towards a state pension for you.
If you are self-employed and earn less than €5,000 a year, you won't be paying S-class PRSI contributions, which means that you won't be building up a State pensions record.
But, you can become a voluntary contributor for €650 (up from €500 to October 2025, and from €253 until 2013). This will boost your entitlement to a state pension.
The challenge here, however, as Swan notes, is that if you're already on a low income, you may not have enough money. However, you can apply to pay in quarterly or half-yearly instalments during the contribution year. And, from a household perspective, it may make financial sense to get your partner, who may be working, to make the payment.
You will need to have 520 paid contributions (ie 10 years) to qualify also. You can apply online using the
Voluntary Contributions Application Form (VC1)
.
6. Remember you may qualify for a pension through your spouse
If you are married but don't qualify for a pension in your own right, you may be entitled to get an increase on your spouse's pension, known as a 'qualified adult' pension. This is offered at a lower rate of up to €259.40 a week.
However, the payment is means tested, and some women may struggle with the concept of being dependent on their partner in retirement. They may also feel that their contribution to society is not being recognised.
'It's a real remnant of the era of that male breadwinner model,' says Swan.
Indeed, until as recently as 2007, the 'qualified adult' payment went straight to the person claiming the state pension, so the spouse – in most cases a woman – had to then rely on their husband to give them the money.
Instead, a bit like the current basic income scheme,
which is being trialled
among artists, the NWCI would like to see the introduction of a universal pension.
While potentially costly, last year, Social Justice Ireland said the introduction of such a scheme could be funded by reducing the higher rate of tax relief on private pensions from 40 per cent to 20 per cent, and by increasing employers PRSI by 0.5 per cent.
'It would be a significant structural change,' says Swan, who adds that the current tax relief is 'disproportionately more valuable to men'.
'The way everyone contributes to society through their life is different,' he says.
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