Personal Fund Threshold

The Finance (No.2) Act 2013 reduced the standard fund threshold from €2.3m to €2m with effect from 1st January 2014.  This is the second such reduction in the standard fund threshold in the last 3 years.  Anyone accessing pension benefits after 1 January 2014 in excess of the €2m threshold will be liable to an excess fund tax in addition to the existing taxes payable on the drawdown of pension benefits which could lead to an effective tax rate on the excess of up to 72%.

While €2m seems like a very significant fund, when we look at it in the context of how much income that could buy in retirement, it suddenly doesn’t seem all that adequate. With a fund of €2m, assuming that you take the maximum tax free lump sum of €200,000 leaving €1.8m to purchase an annuity, the remaining income in retirement would be in the region of €45,000 (based on current annuity rates and assuming a joint life annuity). 

As with previous reductions in the threshold, Revenue are allowing anyone with existing benefits above €2m as at 1st January 2014 to apply for a personal fund threshold.  That threshold, instead of the €2m threshold, will then apply to that individual.  The maximum personal fund threshold available is €2.3m (the previous threshold amount).

This time, Revenue has introduced a new system for those wishing to apply for a personal fund threshold.  Applications must be made through an online system which was originally due to be available from February but was subsequently delayed.  It has now been confirmed that this system will be available from 30th June and there is a 12 month timeframe from that date in which to apply for a PFT certificate.

If you believe you have pension benefits over €2m as at 1st January 2014, you should talk to your advisor to commence the process of applying for a personal fund threshold.

For more information on any of the points raised above please contact ITC on 01 661 1022.

_{*Please note this content is the view of the author and not of Independent Trustee Company}