When pensioners choose not to benefit from the early-opt-out (do not apply for a pension at 61 years of age, having 35 years of contributions paid for those born prior 1962 and terminate employment), and retire as per new pensions reform, at their proper pension age, they receive a pension, yet they can choose to remain in employment (full-time / part-time).
Apart from the possibility of remaining in employment (and thus be in receipt of two incomes – the retirement pension and income from employment), there exists an additional benefit. One of the latest budget measures – Budget 2018 – provides amendments to the contribution average (average of contributions paid) at 65 years of age.
How does it work?
For those who remain in employment, at age 65, contributions paid after the original pension start date, up to age 65 are considered and the contribution average, one of the two main computations in assessing a retirement pension claim, increases since more contributions are considered, hence, bettering the pension rate.
Keep in view that:
- Any contribution average from 15 to 49.99 will result in a decreased amount of two thirds pension rate; Therefore, arrears are entitled to those with a deficient contribution average (less than 50) (not full).
- Arrears are calculated and issued at the age of 65 and not prior, provided that the person in concern would have remained in employment and paid national insurance contributions.
- Measure does not affect retirees who would have had a full contribution average at retirement date, meaning 50/50.
- The other computation, namely the pensionable income (where salaries are involved), is not affected.
Example:
- Mr. X was born during the year 1955.
- Mr. X claimed a pension at his proper pension age, as per new pensions reform, at the age of 62, in 2017.
- Mr. X receives a pension, yet remained in employment.
- Mr. X contribution average (average of contributions paid) for when his retirement pension was calculated was 49, less than 50. This affected his pension rate.
- At 65 years of age, in year 2020, 3 years following his retirement, Mr. X’s rate of pension will be revised.
- Contributions paid between age 62 and 65 will be considered, increasing the contribution average, bettering pension rate.
A difference of €5 a week in pension entitlement means an increase of €260 annually.
Keep in mind that …
… it all depends if your income is spent wisely and good financial decisions are taken at an early age.