There’s a specific kind of problem that doesn’t get talked about enough in Irish retirement planning. It’s the problem of having done everything right. You contributed consistently for decades. The markets did their job. And now your pension pot is sitting at, or getting close to €2 million. Maybe beyond it.

The question at this point isn’t how to accumulate more. It’s how to generate income without handing a significant chunk of it to Revenue in ways that could have been avoided. That’s a different conversation entirely. The reality is, far too many people who should be having it simply haven’t started.

There’s an analogy I find useful here. The accumulation phase, the decades of contributing, compounding, and building, is like getting to the top of the mountain. The drawdown phase is the descent. Different challenge. Different muscles. And in my experience, it gets nowhere near enough airtime in most planning conversations.

So that’s what this piece is about: the income decisions that matter most when your pension is at or approaching the Standard Fund Threshold in Ireland, and why the next few years may be more important than any that came before.

What the Standard Fund Threshold Means at This Level

From 1 January 2026, the Standard Fund Threshold (SFT) in Ireland is €2.2 million, the first increase in over a decade. It will rise to €2.4 million in 2027, €2.6 million in 2028, and €2.8 million in 2029, at which point it will be indexed to average earnings growth based on CSO data. That’s a welcome and overdue development for anyone who has saved diligently.

I’ve written in more detail about what the SFT changes mean for your retirement, including how defined benefit schemes are treated differently, and it’s worth reading alongside this piece if you want the fuller picture.

But here’s what stays the same: any pension benefits above the SFT at the point of crystallisation are subject to Chargeable Excess Tax (CET) at 40%. No reliefs. No deductions. Just 40% on the excess. And when those same funds are subsequently drawn from an ARF or vested PRSA, they’ll typically attract income tax on top. In certain scenarios, the combined effective rate on the excess portion can reach 70% or more.

Right? So that’s the backdrop. The question is: given all of that, how do you generate income from a pension at this level in the most tax-efficient way possible?

The Timing Opportunity: Worth More Than Most Realise

If you have multiple pension pots and haven’t crystallised all of them yet, the timing of those crystallisation events matters enormously. Here’s why.

When you draw pension benefits, you trigger a Benefit Crystallisation Event (BCE). At each BCE, you use up a percentage of your available SFT — calculated as the value drawn relative to the threshold at that time. The crucial detail is that this percentage is fixed, not the euro amount.

For argument’s sake: say you crystallised a PRSA worth €480,000 in 2025, using 24% of the €2 million SFT as it stood then. In 2026, the SFT is now €2.2 million — but you’ve still used 24%, leaving 76% available. That’s 76% of €2.2 million, or €1.672 million: €152,000 more headroom than the €1.52 million the same 76% gave you under the old threshold.

Wait until 2029, when the SFT reaches €2.8 million, and that same 76% becomes €2.128 million. Simply by delaying the crystallisation of additional pension pots by three years, you could shelter roughly €456,000 more from CET than crystallising in 2026 — at a 40% CET rate, that’s about €182,000 of avoidable tax. Compare against crystallising everything back in 2025, and the gap is €608,000 of threshold, or roughly €243,000 in tax. That is not a small number. Most people at this level haven’t stopped to run this calculation — which is precisely why it’s worth modelling before any crystallisation decisions are made.

The key point: if you’re not under pressure to crystallise remaining pension pots immediately, the rising SFT gives you a genuine reason to wait. It’s worth sense-checking the assumption that you have to draw everything at once — quite often, the pressure isn’t as real as it feels. An independent advisor who can model the timing properly is worth their weight here.

The Lump Sum Offset: A Mechanism Worth Understanding

When you retire with total pension assets at or above the SFT, you can take up to €500,000 as a retirement lump sum. The first €200,000 is tax-free. The next €300,000 is taxed at 20%, generating a tax bill of €60,000.

Here’s the part that often gets missed: that €60,000 of lump sum tax can be used to offset your CET liability, euro for euro. Since CET is charged at 40%, this €60,000 offset covers the CET on €150,000 of excess pension value.

It’s a case of using one tax payment to reduce another — and it’s entirely by design, not by accident. In 2026, taking the full €500,000 lump sum gives you an effective threshold of €2.35 million before any CET on top of the lump sum tax becomes payable. That’s the number that actually matters for planning purposes.

Two caveats worth knowing. First, Finance Act 2024 fixed the €300,000 taxed band as a monetary amount — it no longer rises with the SFT. The offset stays worth €60,000 in euro terms, but becomes proportionately less valuable as the threshold climbs to €2.8 million. Second, the independent review of the SFT regime has recommended abolishing this credit altogether. As of today it stands and it’s fully available — but it’s a reason to treat the mechanism as part of current planning, not as something to count on indefinitely. Who knows what a future Finance Act brings.

The Imputed Distribution: Revenue’s Floor

Once your pension is in an ARF, Revenue imposes minimum withdrawal requirements, whether you need the income or not. These are not optional.

The current rates are: 4% per year from age 61 to 70, 5% per year from age 71 onwards, and, this is the one that catches people, 6% per year if the combined value of your ARF and vested PRSA exceeds €2 million, regardless of age from 60.

Let that land for a moment. If you have €2.2 million sitting across an ARF and a vested PRSA, Revenue is forcing you to draw 6% annually, that’s €132,000 per year, regardless of your actual income needs. At the 40% income tax rate, that’s over €52,000 going to Revenue before you’ve spent a euro of it.

This is why the structure of your ARF matters a country mile more than most people realise at this level. An awful lot of people simply accept the default arrangement — one ARF, one pot — without ever considering whether a different structure could give them more flexibility over timing and drawdown. Understanding how ARF taxation works in practice in Ireland is the foundation. Everything else builds from there.

Managing Income Through the Tax Bands

Income drawn from an ARF is taxed as income. At this level of pension asset, the instinct is often to draw as little as possible. But that’s not always the right call.

The standard rate income tax band in 2026 is €44,000 for a single person. Every euro of income within the band is taxed at 20%; every euro above it at 40%. That 20-point difference is real money across a long retirement.

Take a concrete example. A single retiree with a full State Pension of approximately €15,564 per year has roughly €28,400 of standard rate band remaining. Drawing that €28,400 from an ARF at 20% rather than 40% saves about €5,700 per year in income tax — over 20 years, the guts of €114,000 staying in your household rather than going to Revenue, simply because someone did the maths.

For couples, the position is usually better again — and this is where back-of-the-envelope assumptions go wrong in both directions. A jointly assessed couple where both spouses have income (two State Pensions, for argument’s sake) can typically access a wider combined standard rate band than a one-earner couple — often in the region of €65,000 or more, depending on how the income is split and how they’re assessed. The exact figure is specific to your situation; the principle is not: know your bands, and plan your ARF withdrawals around them deliberately rather than letting Revenue’s imputed distribution decide for you.

Tax band management is an active strategy, not a passive one. There’s considerably more on how much income a significant pension can actually generate after tax in Ireland — and the figures there are a useful reality check for anyone still in accumulation mode.

Spousal Planning: The Most Underused Strategy at This Level

The Standard Fund Threshold applies per individual. Your spouse has their own €2.2 million SFT, entirely separate from yours.

A couple who have managed pension savings intelligently across both partners can shelter up to €4.4 million from CET in 2026. By 2029, that figure rises to €5.6 million between them. That’s a striking amount of planning headroom — and it’s entirely legal, fully above board, and the kind of thing we genuinely wish more people had started thinking about a decade earlier rather than a year before retirement.

We see situations regularly where one partner has built a substantial pension, well above the SFT, while the other has very little. That imbalance has often developed over years without anyone really noticing. But there are compound benefits to spreading things more evenly. The €200,000 tax-free lump sum, for instance, is per person. Two partners with balanced pension pots can each take €200,000 tax-free, €400,000 between them, rather than one person claiming their single allowance. That’s before you’ve even looked at the CET headroom across two SFTs.

Bottom line: the earlier that imbalance is addressed, the more options remain open. And in a lot of cases, the window to act is shorter than people realise.

A Real-World Picture: Mikko and Sheila

Take the fictional scenario of Mikko and Sheila MacGillycuddy, both 59. Mikko is a senior engineer in the private sector — well-paid career spanning twenty-five years and, frankly, absolutely done with the place. His executive pension sits at €1.95 million, within €250,000 of the current SFT. Sheila went part-time when the children were young; her PRSA is worth €385,000. Combined pension assets: €2.335 million.

Under Mikko’s name alone, he’s already approaching the SFT and will almost certainly breach it before retirement, depending on investment returns over the next three to four years. Under Sheila’s name, there’s significant headroom remaining.

The strategy isn’t complicated, but it does need to be deliberate. Mikko significantly reduces his own pension contributions, keeping only the employer match going in (turning down free employer contributions is almost always a mistake). Any surplus redirects into Sheila’s PRSA, building her retirement assets toward her own SFT. On Mikko’s side, the focus shifts to the timing of crystallisation — a PRB from a previous employer is sitting untouched. Does it make sense to crystallise it now, or does waiting until the SFT reaches €2.6 million give meaningfully more headroom? They run the numbers and make a deliberate decision, not a default one.

Add it all together, and the total tax position looks materially different from what it would have been if they’d just let things happen whenever they happened. Deliberate decisions around sequencing and timing — that’s the name of the game. Not complicated strategies, but informed, specific choices made at the right moment.

Three Mistakes Worth Avoiding

Before closing, three things I see regularly that cost people significantly — and that are almost always avoidable with a bit of forward planning.

The first is crystallising all pension pots at once without thinking through the timing. It feels tidy. Everything sorted in one go. But if the SFT is in your territory, the sequencing of crystallisation events can make a very large difference to your CET exposure — potentially hundreds of thousands of euros. Be deliberate. Challenge the default. Run the numbers.

The second is letting an ARF drift above €2 million without realising you’ve moved into the 6% imputed distribution band. There’s no fanfare when it happens. One year you’re on 4%, and then your fund grows past the threshold and you’re suddenly drawing €132,000 or more of taxable income regardless of need. If you’re approaching that level, it’s worth knowing in advance — not discovering it when the tax bill arrives.

The third, and the one I most want to stick: building pension assets under one name when two names are available. The SFT is per person. The €200,000 tax-free lump sum is per person. All the limits are per person. In the right circumstances, spreading pension savings across both partners isn’t tax avoidance — it’s diligent, long-term planning. And it makes a genuine difference.

Closing Thoughts

Generating income around the Standard Fund Threshold isn’t one decision. It’s a sequence of decisions, about timing, structure, tax band management, and spousal planning — made over a number of years before and into retirement. The detail matters. The calculations matter. And the cost of getting them wrong, at this level of pension, is significant.

The CET rate stays at 40% until at least 2030, and there’s been a commitment to review it then — though, frankly, who knows what the political and economic picture will look like by that point. What you can control is the timing of your crystallisation events, the structure of your ARF, and whether your household’s pension savings are spread in the most efficient way possible.

So do yourself a favour and have a think about this one — and then follow it up. If your pension is approaching €2 million, or has already passed it, this is the moment to get proper independent advice. Not in five years. Now. The SFT will keep rising, but the decisions you make in the next few years will determine how much of that benefit you actually capture.

I hope this helps — and thanks a million for reading.

Paddy Delaney QFA RPA APA