The new Total Contribution Approach: what does it mean for you?

Pensions are serious business and being comfortable in retirement is a key concern for most people with a pension plan.

That’s why the government’s recent announcement about the implementation of a Total Contribution Approach for calculating a person’s entitlement to the State Pension (Contributory) is likely to cause shockwaves across the country.

The TCA signals sweeping reform to the State Pension that can make a significant difference to how you live in retirement.

A regular review of your pension by a qualified financial advisor can help you keep your retirement goals on track.


How much will I be entitled to?

Under the current TCA proposal, a total of 40 years PRSI contributions will be needed to qualify for the State Pension (Contributory). Stay-at-home parents will be able to claim a maximum of 20 years HomeCaring credits.

People with less than 40 years of PRSI contributions will receive a pro-rata fraction of the full pension amount, meaning that for each year a person makes PRSI contributions, they will receive 1/40th of the full rate at retirement.

It is expected the new State Pension will pay an equivalent of 34% of average earnings, with future pension increases linked to CPI.

For most people, this would not be enough to fulfil their retirement goals and live comfortably, particularly if they wish to continue covering the costs of essentials such as private healthcare insurance, which becomes even more important in old age.

When does the new system come into effect?

While the details of the TCA have not yet been finalised, the new scheme will apply to all new pensioners from 2020 and will replace the current Yearly Averaging Calculation.

Prior to that however, the TCA will be applied to people who qualify for the State Pension backdated to 1 September 2012. Special arrangements will be made for these pensioners to be assessed on either the TCA or the Yearly Averaging calculation – whichever provides a better outcome.

What is the new auto enrolment system?

The government also plans to implement a supplementary retirement savings system from 2022.

It plans to auto-enrol all private sector employees over a certain age and income level while offering other workers the option to manually subscribe.

The new retirement savings system would operate on the basis of contributions made by both workers and employers and supplemented with a government top-up.

Ultimately the government plans to move towards contributions of employer 6%, employee 6% and 2% from the State that is drawn down at the same age as the worker qualifies for the State Pension.

The new retirement savings system would operate on the basis of contributions made by both workers and employers and supplemented with a government top-up.

How can I make sure I have enough in retirement?

While these changes will literally transform the State Pension and what we could expect to receive at retirement from the State in the past, regular reviews of your pension plan can ensure you reach retirement in the best possible position.

A regular pension review can help you stay up to date with how your pension is progressing and identify any concerns or potential shortfalls.

A qualified member of our team can also help you identify opportunities for enhancing your position at retirement and in some cases, even reaching your goals sooner.

To arrange a review of your pension and how the TCA might affect you, contact Hennelly Finance today.