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Pension Related Changes

Standard Fund Threshold

The Standard Funding Threshold (SFT) is a limit or ceiling on the total capitial value of pension benefits that an individual can draw from tax-relieved pension arrangements which come into payment for the first time after 7th December 2005. Pension arrangements is taken to include benefits from defined benefit occupational pension schemes, defined contribution occupational pension schemes, retirement annuity contracts (RACs), personal retirement saving accounts (PRSAs) and additional voluntary contributions (AVCs). This list is not exhaustive and all tax relieved pension arrangement (with the exception of benefits from the Department of Social Protection) will be used to calculate the capital value of an individual's pension benefits.

The SFT limit was originally set as €5m on introduction and was reduced to €2.3m in 2011 and has now been further reduced to €2m with effect from 1st January 2014. Generally speaking this change will potentially only affect members who retire with pensions that deliver an income of €60,000 per annum or more. Where a member has benefits which exceed a capital value of €2m the excess will be subject to tax at 40% (save where a member has obtained a Personal Funding Threshold certificate for an amount greater than €2m). 

Changes under Budget 2014

Budget 2014 made two main changes to the Standard Funding Threshold:

  1. The SFT limit was reduced to €2m with effect from 1st January 2014.
  2. The valuation factor used to calculate the capital value of an individual's defined benefit pension rights (such as those from the UCD Pension Schemes) has been changed from a standard capitialisation factor of 20 to a range of higher age related valuation factors. This change applies to pension benefits accrued after 1st January 2014. As such a split calculation will apply with (i) a standard valuation factor of 20 used to calculate the value of benefits accrued before 01/01/2014 and (ii) with age-related valuation factors applying to benefits accrued after 01/01/2014. 

If the aggregate value of an individual's pension arrangements exceeds €2m, it is possible to apply to Revenue for a Personal Fund Threshold (PFT) certificate. Members may already have applied for and obtained a PFT when the SFT was reduced to €2.3m in 2011. 

The PFT certificate will allow individual's to avail of a higher lifetime pension limit than the SFT, however, the maximum PFT now available is €2.3m. Further details and examples are available in the following:

Retirement Grace Period Extension

The below Circular received from the HEA in January 2018 states that a member’s pre-cut salary i.e. their pay rate in force prior to July 2013 can be used in PFT calculations for retirements between 01/07/2015 to 01/04/2019, in consideration of the extension of the retirement grace period for this time.

Members may have previously obtained their PFT on the cut salary on the basis that the grace period was originally to end in July 2015. These PFTs may need to be revised on account of the grace period extension to April 2019.

Members who may have assessed their need for a PFT on the cut salary and came in below the €2m threshold, may now require a re-calculation based on the pre-cut salary in order to ensure that it would not bring them over the threshold.

Staff who are not due to retire before the end of the grace period will be unaffected by this Circular.

 Further Information:

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Budget 2011

Budget 2011 Pension Related Changes

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