11 TAX CHARGE ON HIGH VALUE PENSION FUNDS

The Standard Fund Threshold (“SFT”) is the maximum tax-relieved pension fund value an individual is permitted. It was first introduced in 2005 and is currently set at €2,000,000. This is a lifetime limit and includes all pension benefits. The previous SFT levels are as follows: Individuals with a higher pension fund value had an opportunity to apply for a Personal Fund Threshold (“PFT”) based on the value of their pensions at a specified date.

Any value in excess of the SFT/PFT is subject to income tax at 40pc as at the earliest date certain events occur. This tax is normally deducted directly from the pension fund.

In general, this tax cannot be offset against any other tax liability. The only exception to this is where standard rate of income tax is paid on a retirement lump sum (see section 8 above).

Ultimately, overfunded pension funds can attract a tax charge of up to 71pc on the fund value in excess of the SFT/ PFT. This incorporates both the 40pc tax applicable on the excess amount in the pension fund and the subsequent tax arising on withdrawal of amounts from the pension fund.

Due to the punitive tax consequences, pension provision/funding over the applicable threshold is something that needs to be considered carefully. Individuals with high value pensions should consider other investment opportunities.