In the wake of Budget 2025, the Minister for Finance has now also published Finance Bill 2024, with new regulations due to take effect from the 1st of January 2025. There will be fairly significant changes to pension rules, mainly in two areas, the Standard Fund Threshold (SFT) and PRSAs (not to mention Auto-Enrolment).
The Standard Fund Threshold (SFT)
The SFT is to be increased as follows, in line with the recommendations set out in a recent Department of Finance report.
- Stays at €2m in 2025
- Increases to €2.2m in 2026
- Increases to €2.4m in 2027
- Increases to €2.6m in 2028
- Increases to €2.8m in 2029
- Increases in line with Earnings from 2030
The legislative link between SFT and the maximum retirement lump sum will no longer apply, meaning the standard chargeable amount will stay at €500,000 wherein €200,000 is tax free and €300,000 is taxed at the standard rate (of 20%). The Chargeable Excess Tax (CET) on pension balances above the SFT remains at 40% but as additional taxes on the drawdown of these funds can result in an effective tax rate of around 70%, a specific review of the rate is to take place by 2030 which could result in a rate as low as the recommended 10%.
PRSAs
Despite apparently wanting to simplifying the Irish pensions landscape, with the PRSA at its centre, the Government (and Revenue) continue to muddy the waters. The maximum pension benefit for occupational scheme members is two-thirds of final salary, with employer contributions restricted by a salary/service formula. Employer contributions to PRSAs are currently are only limited to the lifetime pension fund limit (the Standard Fund Threshold – as above). But the Finance Bill 2024 will set a new employer limit of 100% of the employee’s salary – thus continuing the lack of harmonisation of pension rules.
Employer contributions to an employee’s PRSA within the new cap will remain an allowable deduction in calculating company taxable profits. And personal tax relief on employee contributions will continue at the marginal rate of income tax while still subject to the Age-Related Contribution Limits and Earnings Cap (and overall Revenue Maximum Approvable Benefit limits).
Please call us on 01 276 0006 to talk about your pension options and if you like this article, try this one: Pensions after Death