Changes to Ireland’s ‘standard fund threshold’ tax regime welcomed

The changes to the SFT – which sets a lifetime maximum for tax relieved pension contributions across all pension products and schemes for both the public and private sector - are part of the government’s multi-year plan to implement the recommendations outlined in an independent review (57-page / 709KB PDF) of the SFT regime recently conducted by Dr. Donal de Buitléir.

The SFT was initially set at €5 million when introduced in 2005 but was reduced a number of times, most recently to €2m 2014, and has remained unchanged since that time. The De Buitléir report highlighted the need for the regime to better reflect changes to Ireland’s pensions system and wage growth in the decade since the threshold was reduced.

Key among the report’s recommendations is an increase to the level of the SFT to bring it in line with wage growth since 2024, and continuous adjustments going forward to ensure the threshold aligns with future wage growth. Accordingly, the government has committed to a proposed phased increase to the level of the SFT commencing in 2026 which will result in a SFT of €2.8 million in 2029.

After 2029, the government intents for the SFT to be converged with the applicable level of wage growth at that time.

The report also recommended reducing the rate of charitable excess tax (CET) - which is chargeable on the capital value of the aggregate of pension benefits crystallised over the STF – from the current rate of 40% to as low as 10%. The Irish government, however, has confirmed it will leave the rate of CET unchanged, pending a specific review of the CET before 2030.

The report also included recommendations in relation to taxation of pension lump sums, which are directly related to the SFT. The government also confirmed that the point at which the 40% tax rate will apply to such lump sums, €500,000, will be maintained and not increase as the level of the SFT increases. This change will be provided for in legislation as part of Budget 2025 to be announced on 1 October. In the absence of this change, the amount of a lump sum in excess of the tax-free amount of €200,000 that would be subject to the lower 20% rate would increase in line with the higher SFT.

According to Dublin-based tax expert Robert Dever of Pinsent Masons, the Irish government’s plan to implement the recommendations outlined in the De Buitléir report – and the proposed phased increase of the SFT in particular – is a welcome step.

“The current STF of €2 million has remained unchanged since 2014 and has been cited as having a negative impact on recruitment and retention across a broad spectrum of organisations, especially in the public sector,” he said.

Dever is disappointed, though, with the failure by the Irish government to commit to implementing more aspects of the De Buitléir report, including reducing the rate of CET and spreading CET payments for a period of up to 20 years, something which is only available at present for private sector pensions.

“While not a part of the SFT regime, the recommendations for the removal of the age related and relevant earnings limits in relation to pension contributions are noteworthy and follow on from similar recommendations made by the Commission on Taxation and Welfare in 2022,” he said. “These limits act as the primary constraint on pension contributions in the Irish private sector and their removal would significantly simplify the rules around tax-relieved pensions contributions.”