Cian O'Callaghan
Question:294. Deputy Cian O'Callaghan asked the Minister for Finance if he is planning to review the chargeable excess tax and standard fund threshold regime; and if he will make a statement on the matter. [47418/23]
View answerTuesday, 7 November 2023
Questions (294)
Written answers
I am advised by Revenue that the SFT was introduced in Finance Act 2005, with the purpose of addressing excessive pension accrual, and it applies to all private and public sector pension arrangements. It is provided for in Chapter 2C of Part 30 of the Taxes Consolidation Act 1997 (TCA) which sets out the maximum tax-relieved pension fund at retirement. If the relevant threshold is exceeded, the excess over the threshold (the “chargeable excess”) is subject to an upfront, ring-fenced income tax charge (known as “chargeable excess tax”) at 40%.
The SFT was initially set at €5m. The legislation allowed the Minister for Finance to amend the SFT in line with an “earnings adjustment factor”, which happened on two occasions. The SFT was reduced to €2.3m in December 2010 as part of a package of measures to deliver significant savings in the broad pension area following agreement reached with the EU/IMF. The SFT was further reduced in Finance Act 2013 to €2m, with effect from 1 January 2014, as part of reforms introduced to make supplementary pension provision more sustainable and equitable over the long term. The primary purpose of these changes was to further restrict the capacity of higher earners to fund or accrue large pensions through tax-subsidised sources.
Given that the SFT was last adjusted in 2014 I believe it is now timely to carry out a focused and targeted exercise to review of the current calibration of the SFT.
My Department had already begun the examination which will consider any available evidence regarding the current calibration of the SFT and the potential impacts it is having on public and private sector recruitment. It will also consider issues of tax equity and assess if the current SFT threshold is continuing to fulfil its original policy intent given changes in the CPI and wage inflation since the last such exercise in 2014.
The targeted examination will require input from a range of stakeholders, including the Department of Public Expenditure and Reform and other Departments and agencies. A public consultation is planned which will allow for engagement from all interested parties.
This process is expected to conclude by summer 2024 and following this I will consider the outcomes of the examination.