The pensions provisions in the 2014 Budget, as announced on 15 October, were largely as follows:
- Change to Standard Fund Threshold (SFT)
The SFT is being reduced from €2.3 million to €2 million from 1 January 2014. The SFT is the limit on the total capital value of pension benefits which an individual can draw in their lifetime before incurring further tax liabilities. Individuals with pension benefits in excess of €2million at 31 December 2013 should protect the capital value of those benefits by claiming a Personal Fund Threshold (PFT) subject to a maximum of €2.3 million. Those who already have a PFT will retain it.
The valuation factor of 20 used to convert a pension to a capital value for defined benefit pension entitlements will continue to apply for benefits accrued to 1 January 2014. It is proposed that benefits accrued after that date will be capitalised using new age-related factors depending on the age at which an individual starts to draw down their pension. The factors will range from 37 for someone aged 50 or under to 22 for someone aged 70 or above. The purpose of the new factors is to improve the equity of the SFT regime as between defined benefit and defined contribution pension arrangements and between those who retire at a younger age and those who retire older.
- Tax Relief
Contributions to pension schemes will continue to receive income tax relief at the marginal rate.
- Pension Levy
It was confirmed that the annual 0.6% pensions levy which was introduced in 2011 to fund a jobs initiative will be abolished from 31 December 2014. However, an additional pensions levy of 0.15% will be introduced to continue to fund a jobs initiative and to make provision for potential State liabilities which may emerge from pre-existing or future pension fund difficulties. So while the 0.6% levy will cease to exist as previously indicated by the Government, the levy will essentially be increased to 0.75% for 2014 and will fall back to 0.15% for 2015. For now, there is no indication of what happens thereafter, however, if it is intended that this levy will fund pension liabilities in a similar fashion to the Pension Protection Fund (PPF) in the UK, it is difficult to see how it will end after 2015.
The Budget measures will be included in the Finance Bill which is expected to be published next week.