The big pension problem for farmers in Ireland

Researchers at Teagasc and Maynooth University have been investigating the effect proposed changes to the State pension system will have on farmers in Ireland.

Under the current Irish State pension system, low-income farmers might not qualify for the contributory or non-contributory State pension. This leaves them at risk of working long into their retirement years or becoming financially dependent on family members in their old age.

The Government’s Roadmap for Pensions Reform 2018-2023 aims to modernise Ireland’s pension system, but it fails to fix the ongoing issue for farmers who don’t qualify for any State pension. 

Through a study, Teagasc and Maynooth University researchers have illustrated this stark reality and recommended a model that will give farmers undisputed entitlement to a contributory State pension.

Private pension coverage in Irish agriculture

Ireland has an ageing farming population, and private pension coverage for Irish farmers is relatively low. According to IFAC, an expert team of accountants and financial advisors, as of 2019 62% of Irish farmers aged over 65 had no private pension. For Irish farmers aged between 40 and 65 years old, 52% either had no private pension or had a private pension that only covered one spouse.

 Michael Hayden, Assistant Professor of Accounting at Maynooth University, says: “Average annual farm income is low, and a lack of affordability for private pensions is a major contributing factor to low coverage.

“To receive an adequate income in their old age, farmers face working into their later years, liquidating farm assets or relying on the State pension.”

The impact of assets on State pension entitlement

The researchers designed hypothetical farm case studies to include farmers with no private pension and variable pay-related social insurance (PRSI) contribution histories when assessing their entitlement to the State Pension Contributory (SPC) and/or the State Pension Non-Contributory (SPNC) payments.

They found that farmers who do not have sufficient PRSI contributions to qualify for the SPC are unlikely to qualify for the SPNC, unless they get rid of the majority of their farm assets.

Teagasc Senior Research Officer and Economist Anne Kinsella says: “For a single farmer to qualify for full SPNC, they cannot have capital assets exceeding €50,000.

“For capital assets between €50,000 and €100,000, they would receive a reduced pension only. Capital assets over €100,000 would result in no entitlement.

“We also found that many farmers and their partners who have worked most of their adult lives on the family farm may not have sufficient PRSI contributions to qualify for full SPC.

“To be entitled to SPNC, a farmer who on retirement wishes to transfer the family business to a designated successor, cannot retain anything other than a few acres of land. This means a perfectly understandable wish to retain assets could potentially leave them with no entitlement to a state pension.”

A sustainable solution for the farming community

The most recent reforms of the State pension system do little to reduce the lack of coordination between succession planning, retirement income planning, old age income security and generational renewal.

“This issue could threaten the sustainability of farming in Ireland and further add to the problems surrounding generational renewal, leading to far-reaching negative societal impacts,” says Michael. 

Bridget McNally, Associate Professor of Accounting at Maynooth University adds: “Objectively, a compulsory PRSI contribution system that gives farmers and farm successors realistic access to the SPC would be a positive development for the farming community.”

This system would require a number of changes to the current and proposed new contribution system. In particular it would require mandatory PRSI contributions for farm successors and partners working on farms who are not currently in the PRSI system, with a flat rate amount for those with income below a specified limit.

“There needs to be a framework where farmers paying their way can rely on the security of the SPC,” says Bridget. “This way decisions about farm transfers to the younger generation can be less financially pressurised and less driven by fear of income vulnerability in old age.”

Understanding Ireland’s State pension system

A person who has reached state pension age may qualify for a State Pension Contributory (SPC) and/or a State Pension Non-Contributory (SPNC) payment. The SPC is not means-tested and entitlement levels are based on pay-related social insurance (PRSI) contributions.

Before March 2018, entitlement was based on a ‘yearly average’ approach. However, the Roadmap for Pensions Reform plans to replace this with a ‘total contributions approach’ (TCA). Under the TCA, the level of SPC a person is entitled to is proportionate to the number of social insurance contributions made over their working life.

A full SPC is available to all persons with a full record of 40 years of social insurance contributions. Those with less than this receive a proportionate amount.

For the means-tested SPNC,  calculations of an individual’s means can be complicated and may change between assets. Cash income is calculated with imputed income (benefits not part of a salary or wage) from the individual’s property and investments. The only exception to this is the individual’s home, which is exempt from the calculation.

Asset-rich but cash-poor claimants and their partners are vulnerable to having income imputed which places them above the threshold for entitlement to the SPNC.

Further information

You can find the full research article at https://doi.org/10.1016/j.jrurstud.2021.05.032

Contributors

Michael Hayden, Assistant Professor of Accounting Maynooth University.

Bridget McNally, Associate Professor of Accounting Maynooth University.

Anne Kinsella, Senior Research Officer and Economist Teagasc Rural Economy and Development Programme, Athenry.