Opening statement by Minister Chambers on changes to Standard Fund Threshold

Check against delivery

Good morning everyone and thanks for joining me today in relation to the government decision taken today on the Standard Fund Threshold.

In 2023 independent expert Dr. Donal de Buitléir was appointed to carry out a targeted review of the Standard Fund Threshold (SFT) regime. Today I am publishing the de Buitéir report and will set out my plan for the phased implementation of its recommendations which has been agreed by Cabinet.

By way of context, the SFT sets a lifetime maximum for tax relieved pension contributions. The SFT is part of the tax system which applies to generally for everyone; all pension products or schemes, and both the public and private sector.

The SFT was reduced to €2 million in 2014 and remains unchanged since. Therefore, it was timely that the operation of the SFT be reviewed.

The report makes a number of recommendations to modernise and update the operation of the SFT which reflects developments in the pensions landscape and the impact of wage growth since 2014.

The recommendations seek to improve the operation of the SFT, enhance equity between public and private sector pensions and ensure that the SFT reflects wage growth since it was last reviewed in 2014.

The key recommendations of the report relate to the level of the SFT and the rate of CET. The De Buitléir report recommends that the level of the SFT be increased in line with a wage growth since 2014 and that it continues to be adjusted in line with such growth going forward.

The decision of cabinet today is to phase this increase over a number of years in increments of €200,000 from 2026 until 2029 and then converging the level of SFT with the applicable level of growth at that time. I will legislate for this in the upcoming Finance Bill. This will see the SFT increasing to €2.8 million by 2029.

Government has agreed to maintain the Charitable Excess Tax rate at 40% and will review this by 2030, or before should it be considered appropriate. This will allow for a full assessment of the increase in the level of the SFT in the intervening period.

The report also recommends revised valuation factors take into account different types of pensions that the factors apply to, and in particular, the different types of benefits that are provided for.

I'm asking my officials, as has been recommended in the report, to arrange the independent evaluation of age related valuation factors, which were proposed in the report. De Butléir recommends that there is an independent actuarial evaluation of his proposed valuation factors.

In relation to lump sums, I intend to provide in the Finance Bill 2024 that the threshold for the higher rate of taxation to apply to a pension lump sum is €500,000 rather than a proportion of the Standard Fund Threshold. This means that this threshold will not increase as the level of the Standard Fund Threshold rises. The provisions that allow an individual to offset tax paid at the standard rate of pension lump sum against CET liabilities can be considered in future years.

Additionally, the report recommends some operational and technical changes to the Standard Fund Threshold. These include extending the period to pay the charitable excess tax over a longer period. For private pensions, considering the interaction of the SFT and pension adjustment orders in divorce or separation cases and ensuring individuals have access to information regarding their CET liability.

We are establishing a cross sectoral implementation group with the Department of Finance and Revenue as well as other relevant state bodies or departments to consider the other recommendations outlined in the report, most of which are technical in nature.

I want to thank Dr. Donal de Buitléir for his work in the report, which was commissioned by my predecessor, Michael McGrath. The SFT has remained unchanged since 2014 it was timely last year to undertake this examination. The key decision taken by Government today is an important retention measure, and it gives certainty and clarity to those pursuing promotion in the workplace.

Thank you.