Analysis: without a viable retirement process, farms cannot transfer to the next generation, which is a major concern for the agricultural industry

By Michael Hayden and Bridget McNally, Maynooth University

Many Irish farmers find themselves in a situation at retirement age where they fail to qualify for the State Pension Contributory or Penson Non-Contributory, leaving them faced with working into their retirement years or financially dependent on family members in their old age. Without a viable retirement means, farms cannot transfer to the next generation, which is a major concern for generational renewal in the agricultural industry.

Ireland has an aging farming population, with almost half of farmers over the age of 50. But generational renewal policy focuses heavily on supporting entry into the industry by younger farmers, with less emphasis on encouraging older farmers to retire. Policymakers need to create initiatives to support older farmer in retirement, and pension reform is one potential initiative.

In a recent study by researchers at Maynooth University, proposed changes to the State Pension System set out in the Government's Roadmap for Pensions reform 2018-2023 were investigated in the context of the farming community. Their findings illustrate the stark reality of how low-income farmers can fail to qualify for either the State Pension Contributory or the State Pension Non-Contributory, and how proposed changes to the State welfare system do not alleviate this problem.

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From RTÉ Radio 1's Morning Ireland, Dr Michael Hayden discusses the problem of elderly small farmers unable to get a state pension

The history of the development of the PRSI system for the self-employed means that retiring farmers often fall short of the required 40 years of PRSI contributions to qualify for the State Pension Contributory. This shortfall can occur for many reasons. For instance, farmers with low incomes, which fall below the threshold required to make PRSI contributions, may not have made the voluntary contributions necessary to qualify. Another reason is that many famers may not have inherited their farm until later in life, but would have worked on it nonetheless without being recognised as being in insurable employment and hence not subject to PRSI. Spouses and partners who may have worked on the farm may also be similarly affected.

Farmers who do not qualify for the State Pension Contributory turn to the State Pension Non-Contributory for retirement income. The State Pension Non-Contributory is means tested and the calculation of an individual's means can be a complicated calculation. Typically for any given year, it incorporates calculating the cash income of the individual as well as imputed income from the individual's property and investments other than their private dwelling.

In the study, hypothetical case farms were designed to reflect farmers with no private pension and variable PRSI contribution histories to assess their entitlement to the State Pension Contributory and/or State Pension Non-Contributory. The findings show that farmers who do not have sufficient PRSI contributions to qualify for the State Pension Contributory, are unlikely to qualify for the State Pension Non-Contributory, unless they divest themselves of the majority of their farm assets.

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From RTÉ Radio 1's Today with Claire Byrne, Laura Bambrick and Jim Stewart on pension changes and how they'll affect folks

For a single farmer to qualify for full State Pension Non-Contributory, he/she cannot have capital assets exceeding €50,000 and capital assets of between €50,000 and €100,000 would entitle him/her to a reduced pension only. Capital assets over €100,000 would result in no entitlement. Farmers, and if applicable their spouses/partners, who may have worked most of their adult lives on the family farm, who on retirement wish to transfer the family business to a designated successor cannot retain anything other than a few acres of land to have entitlement to the State Pension Non-Contributory. The perfectly understandable wish to retain some "nest-egg" could potentially leave them with no entitlement to a State Pension and result in them working past retirement age and relying on farm income, or financially dependent on family members, in their old age.

There is a view maintained by some that these difficulties outlined are not really difficulties at all and could be resolved if the farmer were to sell part of the farm assets to fund retirement. However, such a view fails to consider the intricacies of family farm businesses and an attachment to land that previous family generations farmed. Succession planning is an integral part of the continuing life cycle of farms and plays a very important role in the farming physic and in Ireland represents a particular challenge, given the capital nature of the business, concerns over viability of the business and in many cases no clear successor or lack of interest among potential successors.

Such a view fails to consider the intricacies of family farm businesses and an attachment to land that previous family generations farmed

Objectively, a compulsory PRSI contribution system which gives all farmers and farm successors access to the State Pension Contributory would be a positive development. It would require several changes to the current and proposed new contribution system; specifically, farmers below the income threshold for PRSI contributions would have a flat rate mandatory payment rather than the current voluntary option.

Spouses/partners and farm successors working on the farm would also be obligated to pay the flat rate PRSI to maintain their contribution history in years where otherwise gaps would be created. In effect, a model for achieving undisputed entitlement for all farmers to the Contributory State Pension is recommended.

Dr Michael Hayden is an Assistant Professor of Accounting in the School of Business at Maynooth University. Dr Bridget McNally is an Associate Professor of Accounting in the School of Business at Maynooth University


The views expressed here are those of the author and do not represent or reflect the views of RTÉ