If you’re saving for retirement or approaching the end of your career, a major change is coming that could significantly affect how much tax you’ll pay on your pension at retirement. From next year, the Standard Fund Threshold (SFT), which is the maximum value an individual can accumulate across all retirement benefits without triggering additional tax charges, will begin to increase for the first time in over a decade.

For many high earners and long-term savers, this creates new opportunities to improve tax efficiency, reduce tax liabilities, and better plan when and how to draw down retirement benefits.

Why This Matters

The SFT has remained at €2 million since 2014. Any pension fund value above that limit is classified as a Chargeable Excess and is subject to a 40 percent Chargeable Excess Tax (CET). Furthermore, when these funds are subsequently drawn from an Approved Retirement Fund (ARF) or Vested PRSA, they may also be liable to income tax. In some cases, this could lead to a combined effective tax rate of up to 71% on the excess.

A Closer Look at the Changes

What’s Changing from 2026

Following a government-commissioned review by Donal de Buitléir, and starting in 2026, the SFT will increase gradually to €2.8 million in 2029. From 2030 onwards, it will rise annually in line with earnings growth based on CSO data.

This phased increase better reflects current salary levels, investment performance, and inflation. If your pension fund is projected to exceed the current limit, even modestly, the timing of your retirement could now make a significant difference to your tax bill.

Previously Vested Benefits and Future Increases

It’s also important to understand how the phased SFT increases work if you take benefits before the new thresholds take effect. When an individual takes benefits, known as a Benefit Crystallisation Event (BCE), they use up a portion of their SFT.

For example, if you retire a fund with a value of €500,000 in 2024, you have used 25 percent of the €2 million SFT. When the SFT increases to €2.2 million in 2026, you will still be considered to have used 25 percent, meaning you have €1.65 million of the new threshold remaining. This approach allows earlier withdrawals to still benefit from later increases, potentially reducing or eliminating excess tax.

What Stays the Same

Lump Sum Withdrawal Limits

The rules around retirement lump sum limits are not changing. You can still take up to €500,000 as a lump sum. The first €200,000 is tax-free, and the next €300,000 is taxed at 20 percent. These limits are fixed and will not rise alongside the SFT. This means that although pension pots will be allowed to grow larger before a potential CET liability, the treatment of lump sums will remain the same.

Chargeable Excess Tax

The Chargeable Excess Tax rate will remain at 40 percent, even though the De Buitléir review recommended reducing it to 10 percent. The government has committed to reviewing the rate again in 2030. There is, however, a mechanism that can reduce this tax impact. Tax paid on your retirement lump sum can be used to offset part of the CET. For example, if you take the full €500,000 lump sum, the €300,000 portion is taxed at 20 percent, which generates a €60,000 tax bill. This can be used to offset CET on up to €150,000 of excess fund value . This effectively increases the amount you can accumulate before paying additional tax.

What You Should Do Now

If your pension is approaching the €2 million mark, this is the right time to begin planning. The upcoming changes create greater flexibility and potential tax advantages, but making the most of them will require strategic thinking.

Some steps you may want to consider:

• Review your current pension value and projected growth
• Consider how timing your retirement could affect your tax exposure
• Understand how lump sums and excess taxes interact

At Cantor, we use detailed cash flow modelling to forecast whether your pension contracts are likely to exceed the SFT in future years. This allows us to develop tailored strategies to help you protect your pension value and minimise tax.

Final Thoughts

The changes to the SFT mark a welcome and long overdue update to retirement planning rules in Ireland. They offer more headroom for pensions to grow and reduce the risk of unexpected tax liabilities for those with strong savings or investment performance.

If you are approaching retirement, actively contributing, or just want to understand how the changes affect you, now is the time to review your options. A financial advisor can help you align your strategy with the new rules and ensure that your retirement is as tax-efficient and financially secure as possible.

Written by Jean Masterson, Pension Manager, Cantor Fitzgerald Ireland

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