Navigating SFT changes

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chailatte

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Would love to hear some thoughts on my pension situation and possible next steps.

I’m 55 years old and expect to continue working for another 3-5 years. I don’t need any funds from my pension during this timeframe.

I have three pension savings accounts in Ireland (small pension sums in US and UK too but don’t want to complicate things here):
  1. Previous employer DC account - €1.9m
  2. Zurich single premium pension account (a number of once-off pension contributions while self-employed) - €300k
  3. Zurich PRSA - €100k
My pension has been fully invested in equities and am now in the fortunate position of exceeding the current SFT of €2m. With the expected SFT increases in 2026-29 from the latest finance bill, I’d like to figure out the best strategy for these pension accounts so I can avoid the punitive 40% CET (Chargeable Excess Tax).

I’m no longer making pension contributions but continued growth in these funds may push the total over the (future) SFT threshold if I leave them as is.

I’m considering taking the €1.9m account now, withdrawing a 25% lump sum and investing the remainder in an ARF. And leaving the Zurich accounts in place, which can (hopefully) continue to grow and withdraw these in 2028/9 when the SFT is higher.

Questions I have:
  • Is there any issue with withdrawal of pension accounts sequentially like this?
  • Can later withdrawals avail of the higher SFT applied to the cumulative withdrawal amount?
  • Anything else I should be aware of?
  • Any alternatives I should consider?
I’m open to seeking professional pension/tax advice (haven’t figured out how to find someone suitably independent, recommendations welcome). Thought I’d float it here first to gather thoughts from the group.

Many thanks in advance for your help!
 
Bear in mind the significance of the €2.15M figure with regard to the current SFT of €2M.

Key Post - Should you contribute to a pension fund if you are in danger of breaching the €2m limit?

What is the Standard Fund Threshold? In summary, it's the €2m cap placed on the public or private sector pension benefits that an individual can accumulate in Ireland over his or her lifetime. If the individual breaches the SFT, at the point the offending pension benefits are retired, he or she...
www.askaboutmoney.com
I guess that the equivalent figures for the imminent increases in the SFT can easily be calculated.
 
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chailatte said:
I’m considering taking the €1.9m account now, withdrawing a 25% lump sum and investing the remainder in an ARF. And leaving the Zurich accounts in place, which can (hopefully) continue to grow and withdraw these in 2028/9 when the SFT is higher.
Click to expand...
That looks like a sensible approach to me.

This article discusses the various strategies for addressing the SFT issue -

Practical steps for anyone impacted by the Standard Fund Threshold for pensions | Davy

This article explains some of the technical challenges of the pension threshold and the most effective strategies to address them.
www.davy.ie www.davy.ie

As an aside, you must really love your job if you are planning to continue working with that level of assets!
 
There is nothing wrong with doing that.

You will get the threshold applicable at the time of maturity. With a pension of €2.3m already, if markets continue doing well, your pensions will outgrow the increase rate, so you will always be overfunded. 5% annualised return will get you €2.8 in 5 years time. If there is a downturn to slow down the growth, your tax free cash may suffer.

Nothing wrong in maturing the big one now, taking the lump sum and transferring the remainder to an ARF so it can begin the investment journey again, without limits. There may even be scope to make additional contributions to bring you up to €2.8m...but if you leave it everything where it is, you may reach there anyway without an additional cost to you. That's the risk you're taking.

The big question is whether you have enough money to enjoy retirement!

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie).
 
I'll stand corrected but if you retire the €1.9m today and take the lump sum, have you not used up 95% of the SFT. Thus when the SFT increases you can only access 5% of the increase. By 2029 when the SFT increase by €800,000 the OP can only access 5% or €40,000.
 
Historical crystalisation events have to be revalued if the the SFT goes up so that €1.9m would be revalued at €2,660,000 in 2029

The real effective SFT in 2029 will be €2,950,000

There are some proposals under consideration that might help. There's a proposal to reduce the CET to 10% (unlikely). There's a proposal to allow DC savers to pay the tax over 20 years (more likely).

Gerard

www.prsa.ie
 
Thank you for responses so far, very much appreciated!

This is enlightening. I had presumed that maturing the first account would subtract an absolute euro amount from future SFT calcs, but there seems to be a view here that it would be a percentage consumed (or a pro-rated revaluation), which places it in a different light.

I was reading the following snippet from the “Examination of the Standard Fund Threshold” doc from Dr. Donal de Buitléir:

For defined contribution schemes and PRSAs the valuation (or capitalisation of the fund) for the purpose of the SFT regime is the market value of the assets in the individual’s fund or PRSA at the time their benefits are crystallised. This value, with the value of previously crystallised benefits, is compared to the SFT (or a PFT where relevant) and any excess is liable for CET.
Click to expand...

Is there an official resource that is explicit on this question to confirm whether a euro value or percentage would be used? Or is this something Revenue would need to give guidance on?

Thanks again for your input.
 
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