Jack Chambers, Minister for Finance, announced a number of positive pension related changes this week. These changes follow the publication of a review of the Standard Fund Threshold (SFT).
The key changes announced by Minister Chambers are outlined below.
Standard Fund Threshold
The maximum tax-efficient pension fund in Ireland, known as the Standard Fund Threshold (SFT), will change for the first time in over 10 years. The change will see an increase to the limit on a phased basis from €2.0 million to €2.8 million with the threshold to increase by €200,000 each year from 2026 to 2029. From 2030 onwards, the intention is to increase the limit each year in line with an applicable level of growth.
Chargeable Excess Tax
The SFT has long been a major factor in decision making when clients are planning for their retirement. A chargeable excess tax (CET) of 40% applies immediately to the value of pension assets crystallised over the SFT. This excess may be taxed again as income when the pension is drawn, leading to a combined tax rate of up to 71%. This rate of CET is to remain unchanged for now, however a specific review of the rate is to take place by 2030 which could result in a rate as low as 10%
Retirement Lump Sums
Under current rules, a lifetime maximum tax-efficient lump sum of up to €500,000 can be accessed. The first €200,000 of this lump sum is tax free, and the next €300,000 is taxed at the standard rate of income tax which stands at 20% today. Minister Chamber’s announcement confirmed that both elements of the tax-efficient lump sum will remain at the current levels and not increase as future increases to the SFT are applied.
