Changes to the Standard Fund Threshold 

On 18 September 2024, the Minister for Finance announced changes to the Standard Fund Threshold (SFT). The announcement was made following the publication of an independent review carried out by Dr. Donal de Buitléir to examine the SFT regime. 

The SFT is a limit on the amount of pension benefits an individual can accrue from Irish pension arrangements. The current limit is set at €2 million and has remained static since 2014. 

In his statement, the Minister for Finance announced the following changes:

• The SFT is to be increased in increments of €200,000 between 2026 and 2029. This will see the level of the SFT increase to €2.8 million by 2029. The limit will then be increased by an applicable growth rate each year going forward. These changes will be reflected in the Finance Bill 2024.
• The upper limit to which a retirement lump sum can be taxed at 20% is to remain at €500,000. Previously the upper limit was linked as a proportion (25%) of the SFT. The Minister announced that he will be severing that link in the Finance Bill 2024 and instead retaining the limit as a fixed amount of €500,000.
• The chargeable excess tax rate (CET), which is the additional rate of tax paid on pension benefits exceeding the SFT, is to remain the same, however, this will be reviewed again before 2030.
• There will be an independent actuarial evaluation of the age-related factors applying to defined benefit schemes, as proposed by Dr. de Buitléir in his report. The report makes a recommendation to materially decrease the current age-related factors. 
• The statement did not refer to the treatment of previous pension benefits already drawn. However, the current legislation states that these benefits need to be increased in line with future SFT increases. If this position is retained, then members who have already drawn benefits to the previous limit will not benefit from the increase. 

An interdepartmental government working group will be established to consider the other remaining recommendations in Dr. de Buitléir’s report. The main remaining recommendations are:

• A reduction in the rate of CET paid by individuals with benefits exceeding the SFT. Currently this rate is 40% and it is suggested that it could reduce to as low as circa 10%. 
• The abolishment of the tax credit for the CET provided to individuals who pay 20% tax on retirement lump sums (i.e. on lump sum amounts between €200,000 and €500,000).  
• A mechanism to allow private sector employees pay the cost of their CET bill over 20 years directly to the Revenue.
• The removal of the dual encashment option applicable to public sector workers (should the rate of CET be decreased to 10%) or, if the encashment option is not abolished, that it is extended to private sector workers.
• The removal of the annual pension contribution limits to pension schemes. The report recommends the removal of the age-related contribution limits and the overall earnings limit of €115,000. 

The above changes will require careful retirement planning for individuals impacted by the SFT. Mercer can provide a range of SFT supports and solutions to employers and their employees.