Budget 2014 - Pensions

Maximum allowable pension funds for tax purposes

The maximum allowable pension fund on retirement for tax purposes, known as the Standard Fund Threshold (SFT), is to be reduced from €2.3 million to €2 million from 1 January 2014.

A higher threshold (known as a Personal Fund Threshold (PFT)) may apply if, on that date, the capital value of an individual’s pension rights is greater than €2 million. However, in no case may a PFT exceed €2.3m (the current value of the SFT). Pension rights arising under defined benefit (DB) arrangements have to be valued on 1 January 2014 for PFT purposes using the current standard valuation factor of 20. In the case of rights arising under defined contribution arrangements, the capital value for PFT purposes remains, as before, the value of the assets in the arrangement that represent the member’s accumulated rights on that date i.e. the value of the fund.

In addition, the valuation factor to be used after 1 January 2014 for establishing the capital value of an individual’s DB pension rights at the point of retirement (i.e. at a benefit crystallisation event (BCE)) is being changed from the current standard factor of 20 to a higher age–related factor that will vary with the individual’s age at the point at which the pension rights are drawn down. The age– related factors will range from 37 for DB pension entitlements drawn down at age 50 or under to a factor of 22 where they are drawn down at age 70 or over.

Where, however, part of a DB pension has been accrued at 1 January 2014 and part after that date, transitional arrangements will allow the capital value of the pension at retirement to be calculated by way of a “split” BCE calculation so that the part accrued up to 1 January 2014 will be valued at a factor of 20 and the part accrued after that date valued at the appropriate higher age-related factor.

Full details of the changes will be published in Finance (No.2) Bill 2013.