Small firms group to back legal action on pension tax-relief limit

Isme, which represents small- and medium-sized businesses, is backing a test case against the Government that would challenge the way Irish pensions are being taxed.

The group said it was working with members and interested bodies on the case, which is being taken against the €2 million Standard Fund Threshold on Irish pensions that limits tax relief. The measure, which Isme says could mean pension holders pay as much as 70 per cent once private pension pots pass the threshold and the funds are withdrawn, does not apply to public pensions.

The threshold was first introduced in 2005 at €5 million, but was cut to €2.3 million in 2010 and to €2 million in 2014.

Isme chairman Ross McCarthy said the action will start within weeks, and is being taken to solve inequality between public and private pensions. He warned the current situation could mean high-earning professionals leaving Ireland to protect their future income.

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“This is not us pitting the private sector against the public sector, it is an equity issue to ensure that all income is treated the same,” he said. “People in the private sector have a substantially lower ceiling than people in the public sector.

“This challenge is being taken from a tax perspective as well as a democratic perspective. It is not about public versus private. It is long overdue to protect people’s pension rights and level the playing field between people – no matter where they make their income.”

The announcement is being made to coincide with Pensions Awareness Week, which runs until September 25th.

"It's not just the ultra-rich who are affected by the Standard Fund Threshold. People who have saved hard to retire in their 60s are often hit. At current annuity rates, a €2 million pension pot would provide a 65-year-old couple with less than €65,000 per year," said Ralph Benson, Pensions Awareness Week founder and head of financial advice at savings, investment and pensions platform Moneycube.ie.

“The Standard Fund Threshold goes against the need to make pensions simple, financially attractive, and worthwhile for people in Ireland. Revising it in line with Isme’s challenge would help many people in Ireland to do the right thing with their money.”