The Standard Fund Threshold [SFT] was a measure introduced by Government to place a limit on the maximum allowable pension fund at retirement and to restrict the capacity of higher earners to fund large pensions through tax subsidised sources. Budget 2014 reduced the SFT from €2.3 million to €2 million with effect from 1st January 2014. Pension savings and entitlements valued between €2 million and €2.3 million on 1st January 2014 can be protected at that value by applying to Revenue for a higher threshold called a Personal Fund Threshold [PFT].

Where the SFT or PFT is exceeded, the excess is subject to an effective income tax rate of 65% (excluding any USC or PRSI) thus clawing back any tax subsidy which helped fund the excess.

Individuals in Defined Contribution pension arrangements with pension savings valued at less than €2 million can save for a lifetime pension fund of up to €2 million without triggering an excess chargeable to higher taxation.

Anyone affected by this change must now make their own PFT applications online and register for ROS or PAYE anytime with Revenue and the deadline for submission of electronic PFT applications is July 2015. Auditors, as tax agents using ROS, have access to the PFT online application process and can assist their clients in making an application in the same way that they would complete regular online tax returns for their clients. However, the application process is complex and may necessitate the financial adviser working in tandem with the accountant or tax practitioner. There is only one opportunity to make the online application and it cannot be revised afterwards.

It appears that Revenue constructed the online PFT application on the basis that ‘the pensions industry’ had given the expectation that 30,000 taxpayers would be affected by the new reduced threshold of €2 million. The deadline for submission of electronic PFT applications expires in July.

As of 13th March 2015, Revenue had received only 189 applications – that means 29,811 are missing! Or perhaps, the ‘industry’ somehow miscounted?

If you believe you might be affected by this change, check with your pension adviser.