The recent decision to increase the limit for tax relief on the pension pots of high earners has been met with approval in some circles and reassurances in others, particularly among those responsible for appointing senior positions in public services. Recently, there have been significant challenges in enticing applicants to essential roles, especially within the Garda, due to the repercussions of exceeding the existing threshold of 2 million. Any funds above this sum are currently liable for Chargeable Excess Tax (CET) at 40 per cent.
A revaluation of the standard fund threshold (SFT) was tabled last December by the then Finance Minister, Michael McGrath. This appraisal suggested reducing the CET rate to 10 per cent. However, the Government has opted instead to progressively increase the SFT to €2.8 million by 2029. The tax rate will then be reconsidered in 2030. In the words of McGrath’s successor, Jack Chambers, the forthcoming Finance Bill will also plan for the threshold for the higher tax rate on a pension lump sum to be set at €500,000, instead of a proportion of the SFT.
The Minister purports that these amendments are a necessary “retention measure” for those seeking to remain or progress in their place of employment. He cites the decision against lowering the CET rate as evidence of a cautious and practical approach to the issue.
Possibly he is right, however, for many middle or lower-wage earners, the matter casts a critical light on the favourable conditions enjoyed by a small cohort of affluent citizens through their pension arrangements. The revisions mean that by 2029 these persons will gain an additional €800,000 in tax-exempt income. Moreover, the issue emphasises the generous pension arrangements available to senior public servants, particularly those enlisted pre-2013.
The current administration deserves recognition for its strides in guaranteeing more workers are sufficiently catered for in retirement. However, waiving substantial tax sums from some of society’s most affluent factions appears to be a regressive move.