Meeting the “pension deficit” challenge for farmers


How the next generation of farmers will continue the family business is a major challenge for the agricultural industry.

The agriculture industry must develop sustainable and profitable agricultural businesses that are attractive to young farmers, while creating the conditions for older farmers to retire with adequate retirement income. Otherwise, farmers will have to continue farming into their senior years, or liquidate farm assets, to have adequate income in their old age; therefore, the transfer of farms to the next generation will be delayed.

The challenge of generational renewal is highlighted by some striking statistics. Irish Income Statistics 2020 put the percentage of Irish farmers over 50 in 2018 at around 54%. Further, with regard to the low level of farm transfers to new entrant farmers, in 2018 out of approximately 148,000 farmers operating in Ireland, only 322 farmers claimed retirement tax relief when transferring the family farm to another member of the family, while 420 other farmers requested retirement assistance when the farm was sold out of the family.

Regarding the pension gap, the Irish Agriculture Report 2019, published by IFAC Accountants, reports that 62% of farmers over the age of 65 do not have a private pension, while 52% of older farmers 40 to 65 do not have a private pension plan or a plan in place for a single spouse. Given the low average annual farm income levels in Ireland, it is reasonable to assume that lack of affordability is one of the factors contributing to low private pension coverage. This situation means that many farmers continue to cultivate until their last years to ensure that they will have an adequate income in their old age. Therefore, when older farmers refrain from transferring farm assets, this has the effect of preventing younger and/or new entrant farmers from accessing land.

The history of the development of Earnings-Related Social Insurance (PRSI) for the self-employed means that low-income farmers retiring under the current scheme may not be able to pay the contributions needed to qualify for the Full (Contributory) Status (SPC) unless they have also worked regularly off the farm. Spouses/partners who worked on the farm may also be affected in the same way. This leaves farmers and their spouses/partners to turn to the State Pension (Non-Contributory) Scheme (SPNC) for financial support in retirement.

However, recent research by academics from the School of Business at Maynooth University reveals that due to means test rules to assess entitlement to SPNC, low-income farmers with even a small property of land may not be eligible for SPC or SPNC leaving them facing long labor in their retirement years or depending on family members in their old age.

Generational renewal policies must be developed and implemented using a multifaceted approach. Such policies should encourage older farmers to retire and encourage young farmers to enter the industry. A policy that has gained popularity in recent years, but which could be developed further, is that of farming partnerships: older and younger farmers farm together. Another possible incentive factor for farm transfer is the provision of retiring farmers with sufficient income in the form of a pension. The reality is that without qualifying for the SPC or SPNC, many farmers enter semi-retirement and continue to rely on the farm to provide retirement income. This has subsequent consequences on the sustainability of generational renewal in the industry.

In this context, a mandatory PRSI contribution system that would give all farmers and farm successors realistic access to the SPC would be a positive development for the farming community. This would require changes to the current and proposed PRSI contribution system; specifically, mandatory PRSI contributions for farm successors and spouses/partners working on farms not currently covered by the PRSI system, with a lump sum for those with income below a specified ceiling rather than the current voluntary option.

Spouses and partners working on the farm should also be required to pay the flat PRSI to maintain their contribution history in years where gaps would otherwise be created. The security of the promise of a full contributory pension for both farmer and spouse/partner would undoubtedly loosen the web of anxiety around retirement, reliance on family for income future and the appropriate time to transfer the operation. to the next generation.

It should help preserve the culture of family farming, which is an important fabric of Irish rural society. It is important to note that by guaranteeing a specified level of income to retired farmers (post-transfer), it reduces their financial vulnerability in difficult family situations. For non-agricultural society, a contributory system covering a farmer’s working life, leading to a contributory pension on retirement would reflect a sense of fairness and farmers would pay their share, which would also be welcome.

Dr Michael Hayden is Assistant Professor of Accountancy at Maynooth University


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