October 17, 2023

Chase Buchanan Pension Lead Advises Irish Pension Savers to Take Action on Standard Fund Threshold Tax Penalties

The Standard Fund Threshold is set at €2 million, above which pensions trigger Chargeable Excess Tax. Malcolm McDowell, Irish SFT specialist at Chase Buchanan, has released a supporting guide

While the Standard Fund Threshold (SFT) has been a factor in Irish pension taxation for several years, a sustained number of fund holders based in Ireland and other countries have either accepted exposure to significant taxation against their retirement wealth or ceased contributions in light of effective tax rates as high as 70% and above.

The Standard Fund Threshold is set at €2 million, above which pensions trigger the application of the Chargeable Excess Tax (CET), levying an additional 40% tax obligation against funds that exceed the cap.

Malcolm McDowell, the Irish SFT lead at Chase Buchanan Wealth Management, has published a consumer-focused guide to explain some of the straightforward and compliant steps available to reduce tax liabilities and secure the right to maintain pension contributions, irrespective of the fund size.

Financial Guidance for Pension Holders With Irish Retirement Products

The SFT applies to all Irish pension funds held within the country – regardless of whether the owner is an Irish resident or citizen, lives in another country, or simply opted to invest in an Irish pension fund from another jurisdiction.

Since this tax reform was introduced in 2005, thousands, and potentially more, have been subject to heavy tax penalties against their pension savings, with the threshold gradually decreasing by over half from an initial level of €5 million.

Discussing the reason behind the new Chase Buchanan guide, Malcolm says, “The Chargeable Excess Tax isn’t new – and there have long been available and compliant solutions that allow any holder of an Irish pension product to take decisive action to preserve and protect their retirement funds from additional taxation.

Perhaps one of the reasons for a seeming lack of knowledge is that, while an EU pension transfer to another member nation outside of Ireland is commonly an advantageous solution, many Independent Financial Advisers (IFAs) operating within Ireland do not have the appropriate licensing to offer this advice.

As an EU member, Irish tax legislation permits fund holders to transfer pension assets without penalty to another appropriate scheme that remains within the EU. However, any adviser able to provide professional guidance in these matters must be MiFID licensed according to European rules around disclosures and transparency.

I aim to improve education and information about the effects of the SFT and exposure to the CET and ensure that those who require support or assistance in making informed decisions understand all the avenues open to them and can make timely judgments about the best way forward.”

Tax Law on EU Pension Transfers Away From Ireland

The Pensions Authority publishes guidance for pension fund administrators operating throughout Ireland and sets the rules for transferring pension wealth to an overseas location. Provided the new scheme is suitably regulated, the process is relatively straightforward.

This position is standardised across the EU, where Directives permit the free movement of capital, including pension funds, as long as the transaction between providers is compliant.

IORPS II legislation related to occupational pension schemes indicates that pension funds structured as defined benefit or occupational pension pots can be transferred to a similar overseas EU scheme. Other products, such as self-administered pensions and PRSAs, can also be transferred, although they may potentially be more complex.

Post-transfer, pension funds are not further exposed to the SFT or the CET and are subject to the pension rules, freedoms and taxation regulations in the country where the fund is held or where the holder is a tax resident.

Potential Advantages of Irish Pension Transfers to Alternative EU Countries

The positives of transferring an Irish pension product that is certain or likely to be exposed to the CET are substantial. A basic calculation of the tax exposure against the predicted final pension valuation can provide greater insights into how much this option may impact the overall tax liability of the individual as a proportion of their retirement wealth.

Depending on the residency position, marginal tax rates and country of residence of the pension fund holder, financial benefits may include:

  • The ability to draw up to 30% of a pension fund tax-free, without a cap on the upper limit. Irish pension funds are normally restricted to 25% or €200,000 – whichever is higher.
  • Removal of future liabilities on pension wealth above €2 million, where the excess can be taxed by effective rates as high as 70% and above.
  • Protection from duplicate taxation where non-residents may face additional tax obligations for the balance of their funds post lump-sum withdrawal, both in Ireland and their local tax jurisdiction.

Malcom indicates that “Transferring an Irish pension fund to an EU scheme is widely beneficial, and although I would always recommend a full and thorough assessment of your financial position and plans before coming to any conclusions, there are limited scenarios in which this would not prove a tax-efficient move.

With the potential for future changes to Irish tax law and additional regulations that may affect the overall tax burden linked to local pension products, it is advisable for any pension holder living in any country to get in touch to discuss the best solutions for their financial future.

I deliver straightforward, understandable and jargon-free advice, providing my clients with the knowledge and like-for-like comparables to ensure they are equipped with all the information necessary to make confident, informed decisions and comprehend where tax legislation offers them favourable solutions to mitigate anticipated tax exposure.

As I often say, taxes are an inevitable part of life, and it is important to be conscious of your expected tax liabilities to remain compliant. However, where tax law provides accessible resolutions to the benefit of you and your family, it would make no sense to disregard these opportunities and instead decide to leave the tax office a considerable tip.”

Chase Buchanan’s Irish Pension Guide to Standard Fund Threshold Taxation for Irish Savers and International Expats is available to download through the Chase Buchanan website, with further information available by booking a virtual or in-person consultation with Malcolm.

Read more about Standard Fund Threshold: Chase Buchanan Irish Pensions Expert, Sheds Light on the Standard Fund Threshold Calculation

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About Malcolm McDowell

Malcolm McDowell is an authority in pensions-related financial planning and provides comprehensive support to his clients as a portfolio manager with a robust range of accreditations, certifications and qualifications, including CySEC Advanced credentials. Malcolm has launched the new SFT advisory service and free downloadable standard fund threshold calculation guide for pension savers who potentially benefit the most from tactical pension planning.

About Chase Buchanan Private Wealth Management

Chase Buchanan is a highly regulated wealth management company that specialises in providing global finance solutions for those with a global lifestyle. We are global financial advisers, supporting expatriates around the world from our regulated European headquarters, and local offices across Belgium, Canada, Canary Islands, Cyprus, Malta, Portugal, Spain, UK and the USA.

Chase Buchanan Ltd is authorised and regulated by the Cyprus Securities and Exchange Commission with CIF Licence 287/15.

Media Contact:

Malcolm McDowell
Chase Buchanan Ltd
+44 (0) 1252852045

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Source Company - www.chasebuchanan.com



Source: Digital PR
Release ID: 723915