Revenue & Tax: Standard Fund Threshold Changes and What They Mean for Your Scheme

Following the Department of Finance's consultation on the standard fund threshold and the IAPF's pre-budget engagement with Revenue, trustees and scheme administrators should be aware of the current rules governing the threshold and the implications for members approaching retirement with significant accumulated benefits.

The standard fund threshold currently stands at €2 million. This is the maximum tax-relieved pension fund an individual may accumulate across all pension arrangements, including occupational schemes, personal retirement savings accounts and retirement annuity contracts. Any retirement benefits drawn above the threshold are subject to a chargeable excess tax of forty percent on the excess, applied at the point of crystallisation.

For defined benefit schemes, the capital value of the benefit is calculated by multiplying the annual pension by a factor of twenty, plus any tax-free lump sum. For defined contribution schemes, the fund value at retirement is the relevant figure. Trustees have an obligation to ensure that members are made aware of the threshold and its potential implications as part of the scheme's member communications programme.

Revenue has recently confirmed its position on a number of threshold-related queries raised by IAPF members. On the treatment of transfers from overseas pension arrangements, Revenue confirms that foreign fund values must be included in the threshold calculation, using the sterling or euro equivalent at the date of transfer. On defined benefit underpins in hybrid schemes, Revenue has clarified the sequencing rules for calculating the relevant capital value where a member has both a defined benefit underpin and a defined contribution account within the same scheme.

Trustees who have members approaching the threshold are advised to ensure those members have access to independent financial advice and to review scheme communications to ensure they contain adequate threshold warnings.