I have recently become self employed, aged 47, and am wondering what I need to do to ensure I qualify for the State pension. Do I need to “buy” a stamp for each year I work and, if so, how/at what cost?
Ms KS, email
Starting out on your own can be daunting. The traditional supports that most of us take for granted when we work as employees in the PAYE system are abruptly gone. Suddenly, everything is our own responsibility and getting things wrong can land us in trouble – with the Revenue Commissioners or, in this case, with retirement income.
One thing doesn’t change, however – your obligation to pay PRSI. Social insurance is not a choice just because you are now self-employed: it is a requirement. That has been the case since April 6th, 1988, when PRSI became compulsory for people who were self-employed.
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When you were employed by someone else, you will most likely have been paying what are called class A PRSI contributions. These will have entitled you to a range of services, including the State pension – or a widow’s pension, if that was required earlier in life. It also includes benefit payable to people forced to leave work at 65 but who will not qualify for the State pension until they turn 66.
Other benefits included are maternity/paternity/parents/adoptive benefits, illness/invalidity, jobseeker’s, carer’s benefit, cover for occupational injuries, partial capacity or health and safety benefit, or the guardian’s payment.
Now that you are self-employed, you will be paying for a different class of Stamp – class S. Each class has its own benefits
It also included treatment benefits – free dental check-ups and eye exams as well as hearing aids – assuming you have enough stamps. Confusingly, it is not the stamps earned this year that count, or even last year, but the stamps you paid two years before the year you are seeking care. That catches a lot of people out.
Now that you are self-employed, you will be paying for a different class of Stamp – class S. Each class has its own benefits but the important thing from your perspective is that the PRSI payments you make as a self-employed person will also qualify you for the State pension.
In fact, the only benefits you lose out on are the carer’s benefit, illness and occupational injury benefit and the health and safety payment.
One difference is that, while as an employee, you will have your PRSI deducted every week – or every pay packet depending on pay periods in your employment – you pay your Class S social insurance contributions on an annual basis as part of the tax return.
Self-employed people are obliged to make a return – Form 11 – which must by filed by the end of October on a “year after” basis. So this year, you will have settled your 2023 bill in your filing at the end of last month, a deadline that is extended to November 14th if you are filing online.
The only benefits you lose out on are the carer’s benefit, illness and occupational injury benefit and the health and safety payment
In that return, you are also obliged to pay a certain amount of tax in advance – preliminary tax – for the current year. That amounts to 100 per cent last year’s tax or 90 per cent of your estimated tax for the current year.
You will make the PRSI payment on that Form 11 alongside income tax. As long as you are aged between 16 and 70, working and earning in excess of €5,000, you will be liable for PRSI.
Until now, it has been levied at 4 per cent of gross earnings, but that figure rose to 4.1 per cent from October. So, if you are filing for 2023, the figure is 4 per cent, the 2024 “blended rate” to account for the midyear change is 4.025 per cent will apply and from your 2025 return, it will be 4.1 per cent. That figure is expected to rise further in coming years.
There is a minimum figure due. Up to last year, that was €500, and from next year it will be €650. If you are filing for 2024, the blended rate to take account of last months change is €537.50.
Those are the minimum payments. You pay the higher of that figure or 4 per cent of gross earnings.
PRSI “stamps” are not annual but weekly. Your annual Class S contribution will count as 52 weekly stamps.
To secure a full State pension under the new total contributions approach, you will need 2,080 weekly PRSI payments – 40 years worth. You will need 10 years – 520 payments – for a minimum pension.
Confusingly, it is not the stamps earned this year that count, or even last year, but the stamps you paid two years before the year you are seeking care
This can include paid and credited contributions. You can have 10 years of credited contributions – 20 years if you are including Homecaring credits, which cover time out from work to care for children under the age of 12, older children if they are dependent for health reasons or an older person in need of care, for instance an aged parent.
The 2,080 will include any PRSI payments you make as a self-employed person added to those you made previously in employment and any credited payments.
So, all in all, the rates, rules and benefits differ only slightly as a self-employed person but the onus is on you to file the return.
- Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice
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