State Pension Soars, Changes to the Standard Fund Threshold - Time to ask yourself:
Is your pension working hard enough for you?
As the state pension bill soars past €10 billion for the first time, it’s clear that higher taxes may be on the horizon to cover these growing costs.
Combined with recent changes to the Standard Fund Threshold, it’s the perfect time to ask yourself: Is your pension working hard enough for you?
Your pension is more than just a fund—it’s the foundation of your future financial freedom. Yet, many don’t realize the significant tax benefits available.
Did you know you can claim Income Tax relief on your pension contributions, including Additional Voluntary Contributions (AVCs)?
Eligible contributions to the following pension plans may qualify for tax relief:
- Occupational pension schemes
- Personal Retirement Savings Accounts (PRSAs)
We offer impartial advice on setting up pensions, tracking and transfer of pensions and International pensions.
The following are some highlights from the ‘Examination of the Standard Fund Threshold’ report by Dr. Donal de Buitléir and makes for interesting reading.
Standard Fund Threshold: How does the SFT Regime work?
On each occasion after 5 December 2005 that an individual becomes entitled to receive a benefit (e.g. a pension, retirement lump sum etc.) under a Revenue approved pension arrangement (called a “benefit crystallisation event” or BCE), that individual uses up part of their SFT or PFT.
Where the capital value of the aggregate of such benefits crystalised since 2005 exceeds the SFT or PFT, a “chargeable excess” arises equal to the amount by which the threshold is exceeded which is subject to an upfront income tax charge at 40%. Any chargeable excess tax due has to be paid upfront by the pension fund administrator and recovered from the individual.
The impact of the SFT on recruitment and retention was raised by a number of respondents to the public consultation and in many meetings with stakeholders. The feedback is that the regime is impacting on recruitment and retention across a broad spectrum of organisations in both the public and private sector, although the impacts in the public sector were identified most frequently.
A common theme was the idea that is counterproductive to have taxation measures which may dissuade individuals from seeking more challenging roles or encourage them to leave their current roles earlier than they had intended.
For the private sector it was seen to be more of a retention issue, where individuals might choose to retire earlier to avoid a CET charge, which can result in organisations losing experienced staff.
Given that spending needs in retirement are likely to vary substantially depending on personal circumstances it is very difficult to determine a single “appropriate and fair level of estimated retirement income” on the basis of objective criteria.
Indeed it might be argued that this should be left to individuals to decide for themselves on the basis of their own assessment of their likely future needs.
You can read more about the SFT here >>
Whether you’re a company director, self-employed business owner, employee, or approaching retirement, our expert advisors will provide tailored recommendations designed to help you achieve your financial goals while aligning with your values.
Starting or optimizing your pension offers countless advantages, and at Kinetic Financial, we’re here to make the process seamless and stress-free.
