High earners to keep more of their pensions

High earners will be able to keep more of their multimillion-euro pensions after the finance bill rowed back on some of the extra tax liabilities introduced last year.

Budget 2011 more than halved the standard fund threshold (SFT) — the value a pension fund can reach before it becomes taxable — from €5.4m to €2.3m.

However, top-paid workers are to be given a one-off chance to cash in all or part of their pension fund to keep it below the SFT without incurring stiff tax penalties.

The move caused controversy when it emerged the then chief justice John Murray had complained to Enda Kenny about how it would impact on judges’ pension pots at the same time as the Government was preparing its referendum on restricting judges’ salaries.

Under those arrangements, the part of a pension fund above €2.3m, the “chargeable excess”, faced an immediate lump sum tax of 41% at the point of retirement while the remaining sum was subject to income tax as it was drawn down.

The scheme did allow for individuals close to retirement to apply to Revenue by last June to have a personal fund threshold set higher than the SFT so they did not face a sudden drop in expected income.

However, relatively few people qualified for higher thresholds and high earners in the public sector, such as judges, were angered because, unlike private-sector workers, they did not control their own pensions and could not deliberately stop paying into their pension fund to keep it below the new SFT.

Michael Noonan, the finance minister, announced yesterday he was introducing changes with immediate effect to “mitigate the harsher impacts” of the arrangements.

The cash-in will apply both to private-sector workers and those in the public sector who have a private pension in addition to their public pension, which combined would breach the €2.3m threshold.

The sum cashed in will be subject to income tax.