Maximum Pension Size
The Standard Fund Threshold (SFT) is the maximum allowable retirement / pension fund for tax purposes that a person is allowed to accrue during their lifetime. The current Standard Fund Threshold (SFT) Limit is €2m.
However, for planning purposes the target pension size is actually higher from a tax perspective, standing at €2,150,000. The following breakdown will explain why this is the case:
Target Value: €2,150,000
Gross Lump Sum: €500,000
Of this €500,000 lump sum, €60,000 is withheld in tax. This is because the first €200,000 is tax free with the €300,000 balance is taxed at 20%. It may not make sense to take the full 25% lump sum when the Pension is over €2m, as any lump sum surplus above €500k is taxed at full marginal rate tax.
Net Tax Lump sum payable €440,000
75% Remainder: €1,650,000 (Into an ARF)
For the €150,000 amount above the €2m SFT, there is tax of €60,000. However, this tax offsets against the €60,000 tax on the €500,000 lump sum, meaning that €2.15m is the most tax-efficient size.