Ireland has bilateral social security arrangements with many countries, including European Union members, Canada, the USA, Australia and New Zealand, but, unfortunately for Irish nationals living and working in Shanghai, Beijing, or indeed any part of the country, China is not one of them. That means that any contributions and tax paid in China do not count towards the total Pay Related Social Insurance (PRSI) contributions into an Irish state pension. That means that a stint as an Irish expat abroad could leave gaps which will affect your eligibility for the Irish state pension, whether you decide to return to the Emerald Isle or not.
Voluntary Contribution Route
It is entirely possible to opt to make voluntary PRSI contributions in order to guarantee that you receive the full Irish state pension and here’s the full lowdown of the things you need to consider when deciding whether it is worth your while to do so.
There are three conditions which you need to fulfil to qualify for voluntary contributions as an expat:
- You must have made at least 520 (or 10 years’ worth) of compulsory contributions either as a salaried employee or self-employed worker. This has applied since 6th April 2015.
- You must apply to make voluntary contributions within 60 months (or five years) from the last full year in which you made compulsory contributions i.e. 2014.
- You must pay voluntary contributions for the whole period that follows the week in which you stopped paying compulsory insurance. That means a salaried worker would have to make up the remainder of any year after they left employment while someone who is self-employed must pay a flat fee for the entire year.
To confuse matters still further, there are three different rates of voluntary contributions so you need to be clear which of these applies to your individual situation. This will be linked to the last PRSI contribution that you paid (or which was credited to you). High rate contributions (classes A, E and H) are 6.6% of your reckonable income in the previous tax year with a minimum payment of 500 euros.
If you opt to pay voluntary PRSI note that you will need to keep paying these until you reach the age of retirement (currently 66) or until you return to Ireland and start paying compulsory PRSI again or you will lose your right to the full Irish state pension. Payments can be made by cheque, banker’s draft or standing order with a choice of an annual lump sum payment or quarterly or half-yearly installments.
You will find all the official information relating to voluntary contributions as well as information on how to become a contributor here.
But the big question is, is it worth it?
The first point to make is that if you are a returning expat and you do not qualify for the contributory state pension because you have not made enough PRSI contributions, you may still be eligible to qualify for the non-contributory state pension; however it is subject to you being habitually resident and a means test to determine how much state pension you are allowed to receive. The maximum you can receive on the non- contributory state pension is 237 euros.
On the other hand the current Irish contributory state pension is a maximum of 248.30 euros per week, payable at the age of 66. However whether the state pension will keep track with inflation is debatable, added to which we already know that the pensionable age will rise to 68 in 2028 and who knows how high it could go after that as life expectancies continue to go up? Whatever happens, a state pension is not likely to provide a sufficient income for your retirement and perhaps you would be better investing your hard-earned cash elsewhere.
There are numerous retirement planning options available to you as an expat living in China which could provide you with a better return on your money and put you in the driving seat when it comes to your savings. Of course, as investments, these do include an element of risk but there are options linked to all risk profiles and we use sophisticated tools and processes to make sure you only invest at a level of risk which you feel comfortable with.
If you’d like to find out more, I’d be happy to talk you through whether voluntary contributions make sense for you, discuss alternative options and work through some scenarios to show you the kind of return that you can expect. Do feel free to contact me at email@example.com if this is of interest.
I work as a Financial Planner with expat clients to meet their financial planning needs and goals, with a focus on adequately protecting expats & their families, and helping people to grow their savings over the long term. I strongly believe in building meaningful and lasting relationships with clients to ensure the best client outcomes are achieved.