In this article WTW summarises the significant changes to the Standard Fund Threshold (SFT) regime that were proposed in the report of the Independent Examination of the Standard Fund Threshold (SFT) led by Dr. Donal de Buitléir some of which have now been included in the Finance Bill 2024 which was published on 10 October 2024.
The SFT is effectively the lifetime cap on tax approved retirement savings in Ireland with savings over the SFT amount (currently €2m) taxed prohibitively. The current SFT amount has been in place since 2014 and the report made recommendations to modernise the operation of the SFT and reflect developments since 2014.
The Minister’s press release with the report confirms immediate acceptance of a number of the report’s recommendations with the implementation of other recommendations to be overseen by an inter-agency group. The Finance Bill, if enacted, will give legal effect to some of the report’s key recommendations.
The table below highlights each recommendation and confirms the timing of the potential changes.
| Area | Change | Timing |
|---|---|---|
| SFT level | To be increased to €2.8m. Thereafter, adjustments will apply in line with increases in levels of wage growth. | Will be increased gradually by €200,000 p.a. over years 2026 to 2029 inclusive.
Note: no increase due in 2025. The Finance Bill 2024 “hardcodes” these increases and confirms in 2030 the SFT will be €2.8m plus the increase in average weekly earnings between quarter 1 of 2025 and quarter 3 of 2029. This is significant as the 2030 increase will reflect 4.5 years of wage growth. If we assume, say 2% p.a. wage growth this would trigger a potential 9% increase in the SFT level in 2030 (e.g. SFT level of €3.05m). From 2031 onwards the SFT will be increased annually in line with earnings inflation. |
| Retirement lump sum | Maximum tax efficient lump sum no longer linked to SFT amount. Lifetime allowance will remain at €500,000. First €200,000 tax free, balance (up to €500,000) taxed at 20%. | The Finance Bill 2024 “hardcodes” this change. |
| Chargeable Excess Tax rate | Recommendation in report to reduce rate significantly from 40% to potentially 10%. | The rate will remain at 40% with a review of the rate taking place by 2030. |
| Payment of Chargeable Excess Tax (CET) | Allow the payment of the CET to be spread over 20 years for all types of pensions. | Timing uncertain. |
| Valuation factors for DB benefits | Proposal to reduce capitalisation factors for post 2014 defined benefit pension which will reduce the SFT value, based on current market conditions. For example, proposed that capitalisation factor at age 65 should reduce from 26 to 19. | Independent evaluation of factors will be undertaken – timing uncertain. |
| Employee contributions | Abolition of age-related maximum percentages and the €115,000 earnings cap. This would give employees significant contribution flexibility. | Timing uncertain. |
Overall, the changes are significant and will be very much welcomed by individuals and employers who were facing challenges under the current SFT regime. The phased introduction of the changes will certainly give rise to important additional retirement planning considerations and it will be imperative that individuals take professional financial advice!
Once further information is available, it will be critical for companies and individuals to examine the implications for them.
Contact us for support
For more information, please contact your scheme consultant or our financial advisory team today.
LifeSight, a pension solution that helps businesses to offer a high-quality pension to their workforce, now has €2billion of Irish retirement savings as assets under management, and counts more than 130 employers as its clients.
