Pension Taxation and Revenue Limits
Relief and limits
Contributions to approved arrangements attract tax relief subject to age-related percentage limits of net relevant earnings, and an overall earnings cap. Employee and employer contributions are treated differently, and employer contributions are generally deductible for the employer and not a benefit-in-kind for the employee, subject to limits.
The Standard Fund Threshold
The Standard Fund Threshold (SFT) caps the capital value of pension benefits at retirement, with chargeable excess taxed. Personal Fund Threshold applications may apply where the SFT would otherwise be exceeded. The €2m threshold is the reference point candidates must know.
Drawdown taxation
The retirement lump sum is tax-free up to the statutory limit; the balance is taxed. ARF withdrawals and imputed distributions are taxed as income. PRSI and USC treatment differs by payment type.
Traps
- Confusing the age-related percentage limit with the SFT.
- Assuming employer contributions are always unlimited.
- Forgetting that chargeable excess arises above the SFT.
- Mixing income tax treatment with PRSI/USC treatment.
Worked example
A client with net relevant earnings of €100,000, aged 45, may generally claim relief on contributions up to the relevant age-related percentage of those earnings, subject to the overall earnings cap. If their fund at retirement exceeds the SFT, the excess is subject to chargeable excess tax.