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The Irish Times view on raising the pension tax threshold: a retrograde move

This week’s decision to raise the threshold for tax relief on the pension pots of high earners will be greeted with satisfaction in some quarters and relief in others, not least among those charged with filling senior positions in the public service. Grave difficulties have arisen in recent years in attracting candidates to key positions, in the Garda in particular, due to the implications of exceeding the current threshold of 2 million. Any funds above that amount are currently subject to Chargeable Excess Tax (CET) of 40 per cent.
A review of the standard fund threshold (SFT) was announced last December by then Minister for Finance Michael McGrath. That review recommended lowering the rate of CET to 10 per cent. But the Government has decided instead to increase the SFT incrementally to € €2.8 million by 2029. The rate of tax will then be reviewed in 2030. According to McGrath’s successor Jack Chambers, the upcoming Finance Bill will also provide for the threshold for the higher rate of taxation to apply to a pension lump sum be set at €500,000 rather than a proportion of the SFT.
The Minister argues that the changes are a necessary “retention measure” for those who wish to stay or be promoted within their workplace. He points to the decision not to reduce the CET rate as evidence of a measured and pragmatic approach to the problem.
Perhaps he is correct. But for many middle or lower-income earners, the affair sheds an unflattering light on the advantageous terms enjoyed by a small number of prosperous citizens through the treatment of their pensions. The changes mean that by 2029 these individuals will benefit from a further €800,000 in tax-free income. The issue further highlights the generous pension provision which is made for senior public servants, particularly those who joined before 2013.
This Government deserves credit for the progress it has made in ensuring more employees are adequately provided for in retirement. But forgoing large amounts of tax from some of the wealthiest cohorts of society seems a retrograde step.

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