Gerald Nash (Louth, Labour)
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95. To ask the Minister for Finance if he plans to index the cap on tax relief (Standard Fund Threshold) on pensions, against wages; and if he will make a statement on the matter. [51430/23]

Michael McGrath (Cork South Central, Fianna Fail)
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As the Deputy is aware, the Standard Fund Threshold (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. The SFT regime was introduced as a deterrent to prevent over-funding of supplementary pension provision from tax-relieved sources.

When a pension benefit is crystallised (typically this occurs on retirement), its value is assessed. If the relevant threshold is exceeded, the excess over the threshold (the “chargeable excess”) is subject to an upfront, ring-fenced income tax charge, on top of the normal taxes at the marginal rate due upon draw down of the pension funds. These additional taxes are known as chargeable excess tax (CET) which is charged at a rate 40%.

The SFT was initially set at €5 million. It was subsequently reduced to €2.3 million with effect from 7 December 2010 and further reduced to €2 million with effect from 1 January 2014. The reduction in 2014 occurred together with changes to the valuation factors used to value defined benefit pensions for the purposes of the application of the SFT.

The Deputy may also be aware that I have instructed that a targeted and focused examination of the calibration of the Standard Fund Threshold be undertaken. A Memo for Information on this examination is expected to go to Cabinet shortly.

This examination will include a public consultation to allow all interested parties to share their perspective on this important part of the tax treatment of supplementary pensions. The examination is expected to conclude by summer 2024.