How new State pension calculations should particularly benefit Irish women

Pensions consultant with Provest Kieran McAuliffe says the yearly average method had created anomalies, particularly for women. 

“The main anomaly within the YA calculation method arises where a person has a gap in their social insurance contribution record, possibly from periods spent caring for family or travel, and qualifies for a lower pension entitlement than a person with the same number of social insurance contributions," he said.

"This occurs as their yearly average is calculated over the person’s entire ‘working life’.”

Under the yearly average method, a person must have an average of 48 contributions a year since they first entered insurable employment. 

Under the total contributions method, they must have 2,080 contributions — the equivalent of 40 years — and can include up to 20 years’ home caring periods or PRSI credits. The most beneficial payment is then awarded to the individual.

This method is now being phased out over the next 10 years, which Mr McAuliffe says is necessary to avoid a “cliff-edge effect”.

It means that in 2025, a person claiming the State pension will be awarded the higher of the pension calculated on their total contributions or a pension based on 10% of the total contributions pension plus 90% of the yearly average pension. In 2026, this will change to 20% of the total contributions pension and 80% of the yearly average pension and so on.

By 2035, only the total contributions approach will be used to determine the rate of the State pension for an individual. Mr McAuliffe says this method more closely reflects the social insurance contributions made by a person and is therefore a fairer and more transparent method.