Pension Fund Standard Threshold should be immediately increased
November 13th, 2023: ISME notes that the issue of the pension standard fund threshold (SFT) is only being considered at this point by the Department of Finance, because members of the Garda Síochána are refusing to accept promotions because of their tax liabilities under it. However, ISME has been lobbying for equal treatment for private sector pension savers for several years without success. Now, there is a real opportunity for the Minister for Finance to create pension equity for the private sector.
The SFT has been fixed since 2014 without indexation, meaning that each year, retiring workers are treated less favourably than workers who retired the year before. It is ironic that the SFT issue is being addressed now not because it is just, fair and equitable to do so, but because members of the public service are being hit with tax demands.
Private sector workers have long sought equitable treatment of their pensions, in line with that of members of the public service but have been ignored. In terms of tax equity, liability to pay tax on a funding excess should be based on the current value of a worker’s pension on an open market basis, not on a notional or fictional discount rate set years ago by a public servant who does not have to fund their own pension.
The facility which public servants enjoy paying their tax liability over twenty years (and the liability ceases if the public servant dies before discharging it) is not available to private sector workers. If they have a pension liability on their retirement, they must settle it in cash, in full, within three months of retirement.
Proposals made by other parties in Dáil Eireann to cap the Standard Fund Threshold at €1.5 million would mean that any pension more than €49,500 per annum would attract a significant liability to Revenue. This would affect thousands of civil and public servants.
We call on Minister McGrath and the Department of Finance as a matter of urgency to address the Standard Fund Threshold issue, not because it is affecting politicians and members of the public service, but because it is the just, fair and equitable thing to do,” said Neil McDonnell, Chief Executive, ISME. “The Minister should immediately increase the SFT and commit to its annual indexation in line with CPI. A commitment to do this now would resolve the issues being faced by the Department of Justice.”
