Senior citizens could receive tax deductions on pension pots up to €2.8 million, according to plans currently being examined by the cabinet. The initiative, proposed by Finance Minister Jack Chambers, is to gradually raise the current €2 million limit by an additional €200,000 annually from 2026, reaching its peak in 2029. This earlier limit was perceived as a drawback to the appointment of senior roles within the Garda, and potentially obstructive to other high-earning public sector employees. As per existing laws, a pension pot exceeding €2 million is subject to extra tax.
The review of what’s known as the standard fund threshold was declared in December last year by former Finance Minister Michael McGrath. As suggested to the review committee, the pension value of several hundred top-ranking civil servants is now at or surpasses €2 million each.
In the preceding year, the dread of tax repercussions upon retirement deterred members of the Garda from pursuing promotion to advanced roles. Typically, pre-2013 public service pension schemes account for 50% of one’s salary and an added lump sum equivalent to 1.5 times their salary with full service. This has led groups, such as doctors, who claim their current salary levels could cause them to reach the SFT limit years ahead of traditional retirement age. This could push some to leave their positions earlier than intended.
The evidence provided to the review substantiates that sums surpassing the threshold level could be susceptible to an applicable surplus tax of 40%. According to the employer’s association, Ibec, accounting for USC and PRSI, this could mean an effective rate on income above the SFT that goes up to 72%.