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January 26, 2026
It applies per individual. Your spouse has their own separate limit.
If you're saving for retirement or nearing the end of your career, or eyeing retirement or a 'handier' role :) a significant change is on the horizon that could meaningfully affect how much tax you'll pay on your pension. From 2026, the Standard Fund Threshold (SFT), the maximum value you can accumulate across all retirement benefits without triggering additional tax charge, will begin to increase for the first time in over a decade.
For many high earners and diligent savers, this represents a genuine opportunity to improve tax efficiency, reduce liabilities, and plan more strategically around when and how to access your retirement benefits. This piece aims to keep it plain English, and I hope you will learn:
• What the Standard Fund Threshold is in 2026 and why it matters
• How your pension is valued for SFT
• What tax applies if you breach it, and differences between Defined Benefit, and the rest!
• Smart planning moves before you retire
• When to get help and stop guessing
The SFT has been stuck solid and frozen at €2 million since 2014. Any pension fund value above that limit is classified as a 'Chargeable Excess' and attracts a 40% Chargeable Excess Tax (CET).
If you have a Defined Benefit scheme and your statement is showing you will receive an annual defined benefit pension income of say €80,000 or more, this Excess Tax could reduce that quoted income quite significantly, so you don't actually receive the quoted gross income! This is variable depending on the factors applied, years you accumulated it, and your age etc.
In the case of non-defined-benefit pensions (Occupational Schemes, PRSAs, ARF, PRBs, BOBs!), when these excess funds are later drawn from an Approved Retirement Fund (ARF) or Vested PRSA, they will most likely also be subject to income tax.
In some cases, this can create a combined effective tax rate of up to 71% on the excess amount, a fairly punishing outcome that has caught many successful savers by surprise.
The SFT was originally introduced in 2005 at €5 million, yes €5m!
However, following the financial crisis, it was reduced to €2.3 million in 2010, then further cut to €2 million in 2014, where it has remained for over a decade. During this time, wage inflation in Ireland has reached approximately 33%, meaning many professionals—particularly those in senior public sector roles like senior Gardaí, hospital consultants, and principal officers—have been hitting the threshold well before retirement age.
This has created a perverse incentive: professionals facing severe tax penalties have been retiring early or declining promotions to avoid breaching the cap. The government's decision to increase the SFT is primarily a retention measure aimed at keeping skilled professionals in crucial roles, though it will benefit private sector high earners as well.
What's Changing from 2026
Following a government-commissioned review by Dr. Donal de Buitléir (which you can read in full here!) the SFT will increase in steps of €200,000 annually from 2026 through 2029, reaching €2.8 million. From 2030 onwards, it will rise in line with average earnings growth based on CSO data.
Year SFT
2026 €2,200,000
2027 €2,400,000
2028 €2,600,000
2029 €2,800,000
This phased approach aims to better reflects current salary levels, investment growth, and inflation.
If your pension fund is projected to exceed the current limit when you draw it (and that is the key aspect), even modestly, the timing of your retirement draw-down could make a substantial difference to your tax bill and subsequent retirement incomes, and legacy.
How Previously Vested Benefits Work with Future Increases
An important but often misunderstood aspect is how the phased increases work if you've already taken some benefits before the new thresholds take effect.
When you access pension benefits, you have what is known as a Benefit Crystallisation Event (BCE)! Yes, we do love our acronyms!
You use up a percentage of your available SFT each time you tap into each individual pension pot or turn on each individual pension income you may be entitled to, be that DC pension pots, PRSAs, or Defined Benefit income schemes.
For example, suppose you retired (had a BCE!!) a PRSA or PRB pot valued at €480,000 in 2025. You used 24% of the €2 million SFT, as it was at the time.
So as the SFT increased to €2.2 million in 2026, you're still considered to have used 24%, meaning you now have 76% of €2.2m, or €1.672 million of threshold remaining.
In that scenario, you can crystalise or draw-down up to €1.67m of pension pots (or equivalent DB income) in 2026 without getting hit with any Chargeable Excess Tax.
If you delayed the draw-down of these other notional pension benefits to 2029, you still have 76% of threshold remaining, but its 76% of €2.8m, or €2.12m, so almost an additional €500k of pension benefits with no CET liability by waiting 3 years!
This proportional approach is sold as allowing those with earlier withdrawals to still benefit from later increases on future pots, potentially reducing or eliminating excess tax on subsequent pension funds!
Lump Sum Withdrawal Limits
The rules around retirement lump sums are not changing. You can still take up to €500,000 max as a lump sum at retirement, if you have €2m or more total pension assets. The first €200,000 remains tax-free, with the next €300,000 taxed at 20%. Importantly, under changes introduced in Finance Bill 2024, this €300,000 band is now fixed as a monetary amount and will not increase alongside the SFT beyond 2029. This means that while pension pots can grow larger before triggering CET, the treatment of lump sum withdrawals remains exactly as it is today. Buggers.
How To Reduce Chargeable Excess Tax?
The CET rate will remain at 40%, despite Dr. de Buitléir's recommendation to reduce it to 10%. The government has 'committed to reviewing' this rate again in 2030, though there's no guarantee of a reduction, and I guess will be dependant on the politics and economic winds of that time.
However, there is a mechanism that can reduce the impact of CET.
The tax you pay on your retirement lump sum can be used to offset part of the CET liability.
Here's how it works: if you take more than €200k lump sum, you can offset the 20% tax you pay on that lump sum against the CET!
For example, you have €2.5m pension assets in PRSA. You opt for the full €500,000 lump sum. In that scenario the €300,000 portion is taxed at 20%, generating a €60,000 tax bill.
This €60,000 can be used to offset CET, which is 40% rate, on up to €150,000 excess fund value.
This effectively increases the amount you can accumulate before paying additional tax.
And assuming this remains unchanged, the effective SFT if taking max lump sum and offset per year for the coming years in Ireland are:
Year SFT Effective SFT (with Lump Sum Tax Offset)
2025 2,000,000 €2,150,000
2026 €2,200,000 €2,350,000
2027 €2,400,000 €2,550,000
2028 €2,600,000 €2,750,000
2029 €2,800,000 €2,950,000
For many of our clients, particularly senior executives, business owners, and professionals who have diligently saved throughout their careers, these changes provide an element of breathing room. The gradual increase allows you to build larger retirement funds without the immediate threat of punitive taxation that has been hanging over retirement planning for the past decade.
However, it's important to remain realistic and direct here! With the CET rate staying at 40% until at least 2030 and lump sum caps remaining fixed, careful planning is still essential. The timing of your retirement, the sequencing of pension drawdowns, and coordination between multiple pension arrangements can all significantly impact your after-tax retirement income.
Often yes. Directors usually control contribution levels and timing. This creates planning opportunities but also risks if ignored.
Feature Defined Contribution Defined Benefit
How value is measured Fund value Pension income x factor
Typical factor Not applicable Usually 20
Lump sum included Yes Yes
Visibility of value High Often low
Risk of surprise breach Medium High
That final aspect, 'surprise of SFT breach' is a big one for Defined Benefit schemes. You get a DB benefit statement every year and never is there a mention of the quoted DB annual income being slashed due to CET - but that is the reality. This is partricularly a risk if you decide to take the full DB income and refuse a tax free lump sum, again, depending on the calculations and level of annual income. But ask the question of your DB Trustees - 'what is the impact of SFT, if applicable, on my projected DB income?'. They should be able to advise accordingly.
You might know that we are big fans of Defined Benefit schemes, and my default recommendation is always to start with the assumption that you hold onto a DB income like a life-raft! However, we often see large DB schemes where they encourage members to take a transfer value from their Defined benefit scheme. Depending on the TV, it can be a viable option. Sometime it can open up valuable other routes for the member to navigate the SFT limits, and/or benefit from future increases.
For example:
Say you have a DB scheme that is quoting you annual income of €90,000 per year.
Upon investigation you discover that, based on your own unique circumstances and calculations, this put you well in excess of the SFT, resulting in a reduces DB income of €75k Gross per year, for example. They offer you an Enhanced Transfer Value of say €2.1m. This is c19 times the quoted DB income, not amazing, but in and around what one might typically see.
This Transfer Value would not reach/exceed the SFT (positive). It gives option to move the full value to PRSA, or multiple PRSAs now (positive for flexibility).
It gives options to tax up to €500k lump sum (positive) from the PRSAs now or phased basis, and invest balances in an Approved Retirement Fund, or indeed buy an annuity with some or all of the balances (positive subject to annuity rates being decent at that time!). Full value of the PRSA or ARF essentially passes to your partner/estate on your death (positive).
There are some potentially massive tax, income and estate positives, but there are potentially massive negatives too!
Negatives are
A) You would need to get your head around all-of-a-sudden NOT having a defined benefit/guaranteed income
B) If using PRSA or ARF, exposure to market swings and potential negative long term outcomes
C) Additional costs and administration of draw-down from ARFs, PRSA etc. usually requiring a financial planner (but who doesn't want a good one of them!)
D) Its a huge decision that many are nervous and will avoid entirely!
If you have both types, DC and DB, it gets even more exciting! Add them together.
This is one of the most common questions we hear.
The answer is annoying. It depends.
• You are already above the SFT
• Employer contributions are discretionary
• You have strong non pension investments
• You want more flexibility pre retirement
In this case, redirecting savings can reduce future tax pain.
• Employer match is available
• You still get meaningful tax relief
• You are close to but not over the limit
• You plan to retire later
Turning down free employer money often hurts more than the SFT tax.
This is where personalised modelling matters. Guessing is expensive.
Ask your future self. Would you rather have options or regrets?
We see these weekly. Sometimes daily. We sigh quietly.
• Ignoring defined benefit valuations
• Waiting until age 59 to look at SFT
• Assuming accountants handle pension strategy
• Over funding pensions without modelling outcomes
• Forgetting lump sums count
If any of these sound familiar, you are not alone. You are also not stuck.
If your pension benefits (across all DC, OPS, DB etc) is approaching or projected to exceed €2 million, now is an opportune time to review your retirement strategy. The upcoming changes create greater flexibility and potential tax advantages, but maximising these benefits requires thoughtful planning, and a small dabble of luck with regards timing and draw-downs!
Key considerations include:
We use detailed cashflow modelling to forecast whether your pension arrangements are likely to exceed the SFT in future years and by how much. This allows us to develop tailored strategies to help protect your pension value, generate the income you need, and strive to minimise unnecessary tax!
The changes to the SFT mark a welcome and overdue update to Ireland's retirement planning framework.
They provide more headroom for pension growth and reduce the risk of unexpected tax liabilities for those who have saved successfully or benefited from strong investment performance.
That said, the system remains complex. Whether you're approaching retirement, actively contributing, or simply want to understand how these changes might affect your long-term plans, professional guidance can help ensure your retirement is as tax-efficient and financially secure as possible.
If you'd like to discuss how these changes might affect your specific situation, we're here to help you navigate the details and plan with confidence.
If SFT 2026 Ireland is on your radar, you do not need guesswork. You need clarity.
You can:
• Book an Initial Call with Informed Decisions
• Read more on our blog
• Listen to our award winning podcast
We specialise in helping professionals make confident retirement decisions, on an independent, empathetic and expert way.
Your future deserves better than crossed fingers!
I hope it helps.
Thanks,
Paddy.
The content of this site including blogs and podcasts is for information purposes only. Everybody’s financial situation is different and the content we share on our site and through podcasts may not be applicable to you.
The articles, blogs and podcasts are not investment advice. They do not take account of your individual circumstances, including your knowledge and experience and attitude to risk. Informed Decisions can’t be held responsible for the consequences if you pursue a course of action based on the information we share
No. All pensions are added together. There is no clean slate.
Informed Decisions are one of Ireland’s only remaining independent financial advice firms. We specialise in retirement & investment planning for successful individuals, so that our clients only have to retire once.
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