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ARF Withdrawals and your PRSI Record

September 12, 2022AgileDS

 

Back in November 2018 Deputy Michael McGrath received clarification from the Minister for Employment Affairs and Social Protection (Regina Doherty) as to whether PRSI paid from ARF withdrawals are reckonable for the purposes of the State Pension.

Regina advised “Distributions from ARFs fall within the charge to Class S self-employed PRSI, or if the recipient of the distribution is a modified class contributor, Class K.  Class S contributions may be used to qualify for the State pension (contributory)”

This is what we would reference when we get queries from clients on this issue. See below.

https://www.oireachtas.ie/en/debates/question/2018-11-21/241/#pq-answers-241

It is important when clients have a shortfall in PRSI to continue to accumulate PRSI if they retire before State Pension age.

Zurich were recently told by Dept. of Social Protection that you will only accumulate PRSI if withdrawals are in excess of €5,000 per annum.

A large percentage of ARF withdrawals are less than €5,000.

Which in many cases will cause these retirees to have a smaller pensions (or indeed none if he/she had low levels of contributions) than they would otherwise have had if they withdrew sufficient amounts from their ARF (over €5,000) to qualify for 52 PRSI credits.

We sought clarity on this issue from the Minister for Social Protection, Heather Humphreys T.D.

Minister Humphreys got us confirmation that.

“Any income of more than €5,000 a year will incur the Class S charge.  It is not necessary to have the same source for the income – for example a person could have ARF income of €3,000 and income from rents of €2,000 and would therefore be liable for the Class S charge.  The minimum annual Class S contribution is €500.”

See the link below for the full response.

View Full Response

This is an important nuance (any income of more than €5,000 a year will incur the Class S charge) that Financial Advisers should make their clients aware of it they are retiring before State Pension age with PRSI shortfalls.

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