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Pension tax relief rises to cover pots of up to €2.8m by 2029 under Cabinet plans

Retirees will be able to get tax relief on up to €2.8 million in a pension pot under plans approved by Cabinet on Wednesday.
Ministers signed off on a proposal from Minister for Finance Jack Chambers to gradually increase the figure – which currently is limited to €2 million – by €200,000 a year until 2029, starting in 2026 and culminating in 2029.
The limit had been pointed to as a barrier to the filling of senior positions within the Garda, as well as a potential stumbling block for other high earning public servants.
Once a pension pot hits €2 million under current rules it is subject to Chargeable Excess Tax (CET) of 40 per cent for anything over that level.
A review of the standard fund threshold (SFT), as it is known, was announced last December by then Minister for Finance Michael McGrath with independent expert Dr Donal de Buitléir appointed to carry it out.
Mr Chambers confirmed that the Government decided on Wednesday to implement the review’s recommendation that the SFT be increased on a phased basis to €2.8 million.
He said the Government decided to maintain the CET rate at 40 per cent – not reduce it to 10 per cent as recommended by the de Buitléir report – but that this will be reviewed by 2030.
Mr Chambers also said he intends to use the upcoming Finance Bill to provide for the threshold for the higher rate of taxation to apply to a pension lump sum be set at €500,000 rather than a proportion of the SFT.
This means that this threshold will not increase as the level of the SFT rises.
The value of the pensions of several hundred senior Civil Service personnel at principal officer or above is now at or above €2 million each, according to submissions to the review group.
Last year it emerged that concern over tax implications on retirement was dissuading gardaí from seeking promotion to the role of Deputy Garda Commissioner.
Public service pension schemes, particularly those in place before 2013, generally provide for 50 per cent of salary and a lump sum of 1.5 times salary based on full service.
[ Why it’s best not to cross the pension standard fund thresholdOpens in new window ]
Groups such as doctors argue that current salary levels could see them hit the SFT limit years before normal retirement age – which could encourage some to depart in advance of schedule.
Submissions to the review maintain that funds above the threshold level are subject to a chargeable excess tax of 40 per cent effective rate.
The employers’ group Ibec said if USC and PRSI was included, this resulted in an effective rate on income above the SFT of up to 72 per cent.
During a press conference at Government Buildings it was put to Mr Chambers that the planned increase of the SFT to €2.8 million amounted to giving well-off people more money.
Mr Chambers countered this to say the plans are a “retention measure for those who want to stay or be promoted within their workplace” and that is an “important principle”.
He also pointed to the decision not to reduce the CET rate.
He said: “this is a balanced approach and will help to address the well-documented issues which were there in the context of certain positions in the public service, for example.”
Mr Chambers also said he thinks the planned change “will make a difference in filling important roles, particularly when it comes to An Garda Síochána.”

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