Michael McGrath (Cork South Central, Fianna Fail)
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I understand that Deputy Creed is referring to the chargeable excess tax and Standard Fund Threshold (SFT) regime.

I am advised by Revenue that the SFT was introduced in Finance Act 2005, with the purpose of addressing excessive pension accrual, and it applies to all private and public sector pension arrangements. It is provided for in Chapter 2C of Part 30 of the Taxes Consolidation Act 1997 (TCA) which sets out the maximum tax-relieved pension fund at retirement. If the relevant threshold is exceeded, the excess over the threshold (the “chargeable excess”) is subject to an upfront, ring-fenced income tax charge (known as “chargeable excess tax”) at 40%.

The SFT was initially set at €5 million. The legislation allowed the Minister for Finance to amend the SFT in line with an “earnings adjustment factor”, which has happened on two occasions. The SFT was reduced to €2.3 million in December 2010 as part of a package of measures to deliver significant savings in the broad pension area following agreement reached with the EU/IMF.

The SFT was further reduced in Finance Act 2013 to €2 million, with effect from 1 January 2014, as part of reforms introduced to make supplementary pension provision more sustainable and equitable over the long term. The primary purpose of these changes was to further restrict the capacity of higher earners to fund or accrue large pensions through tax-subsidised sources.

It is not the case that increases in the CPI or other measures of purchasing power should necessarily automatically result in an increase to the SFT. However, as with all taxes, the tax treatment of supplementary pensions, including the SFT, is kept under ongoing review.