Liam Naughton, Director Private Client, Grant Thornton: The Standard Fund Threshold is the maximum tax efficient pension fund you are entitled to crystallise in Ireland during your lifetime, with tax payable on the excess at 40%.

The threshold applies at each pension crystallisation event in your lifetime, the main event being when you “retire” your funds by drawing a lump sum and usually investing the balance of funds in an Approved Retirement Fund or purchasing an annuity.
Many people are unaware that death is not considered a crystallisation event and should ensure this is factored into their financial planning from a tax and inheritance planning perspective.

Section 13 of Finance Act 2024 covers the proposed increases to the Standard Fund Threshold between now and 2029, with the threshold expected to increase from its current level of €2m to €2.8m in increments of €200,000 between 2026 and 2029. Further increases may apply from 2030 based on increases in the Earnings, Hours and Employment Costs survey.

One key factor not being discussed as part of the proposed changes is the revaluation of previous crystallisation events since 2014 in line with future increases in the Standard Fund Threshold (Taxes Consolidation Act, 1997, Part 30, Chapter 2C, Schedule 23B, 4 & 5). For example, where an individual has already crystallised €2m of pension funds they will be seen to have used 100% of their current threshold. When the threshold increases in the future, their already crystallised amount will be revalued in line with this percentage use of the threshold, removing any further scope to fund within the new threshold. The same revaluation rules will apply to funds crystallised between now and 2029.

Therefore, any individuals considering crystallising funds in the coming years need to make sure it makes sense as part of their overall financial plan, as once funds are crystallised there is no going back.

This article appeared in the November 2024 edition of the Irish Tax Monitor.