The annual earnings limit which (along with age-related percentage limits) determine the maximum tax-relievable contributions for pension purposes that an individual taxpayer can make in any year is being set at €115,000 for 2011 as compared with the limit of €150,000 for 2010. The annual earnings and age-related percentage limits apply to all contributions made by an employee, whether in the public or private sector, to an occupational pension scheme, including additional voluntary contributions, and to contributions made by individuals to personal pension plan arrangements such as Retirement Annuity Contracts (RACs) and Personal Retirement Savings Accounts (PRSAs). These limits do not apply to employer contributions except in the case of PRSAs.
While contribution-based controls have historically applied in the case of RACs and PRSAs, controls based on maximum allowable benefits apply in the case of occupational pension schemes. The main control that applies in that regard is that the maximum retirement benefit that can be funded for a scheme member cannot exceed two-thirds of the individual's final remuneration. A separate life-time tax relieved pension fund limit (the Standard Fund Threshold or SFT) currently set at €5.4 million is also in place and where the capital value of a two-thirds pension would otherwise exceed that amount a punitive tax charge applies to the excess. The SFT applies regardless of the type of pension fund arrangement and, as mentioned in the National Recovery Plan, the SFT is being reduced. Details of the reduction will be outlined in today's Budget documentation.