If you’re focused on retirement planning, you’ll know that maximising your pension contributions and investing in the right funds could put you on track to achieving a seven-figure pension pot upon retirement.

But did you know that you can actually have too much of a pension in Ireland?

This is because of the Standard Fund Threshold (SFT) – a cap on the pension wealth you can accumulate without paying additional taxes. The SFT is designed to ensure that people don’t ‘abuse’ the pension system to increase their wealth and avoid paying tax.

This limit is set to increase in 2026 for the first time in over a decade, providing a fantastic opportunity for long-term savers and high-earners to maximise their retirement savings and improve their tax efficiency. 

So let’s dive into what Ireland’s new pension limits might mean for your financial future.

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What is the Standard Fund Threshold?

There is a limit on how much can be in your pension pot without paying additional taxes. This limit is known as the Standard Fund Threshold, currently set at €2 million. Simply put, any savings above this pension cap in Ireland are taxed at 40%. This means that many long-term savers are being taxed on their retirement savings through no fault of their own.

The SFT was first introduced in 2005 to close up tax loopholes that were being used by individuals to accumulate millions of euro in pension assets.

At that time, the upper pension limit was set at €5 million. This was reduced to €2.3 million in 2010, and again to €2 million in 2014 – which remained in place for over a decade. In Budget 2025, the government announced the first major updates to the SFT in over 10 years.

Updates to the Standard Fund Threshold

From 2026, the Standard Fund Threshold in Ireland will begin to rise by €200,000 each year until 2029 when it reaches €2.8 million. 

Another major update to how SFTs work in Ireland is that from 2030, the new €2.8 million limit will be adjusted in line with increases in average earnings. 

There will be no change to the maximum tax-efficient lump sum, which is currently capped at €500,000 despite increases to the SFT.

Updated Standard Fund Thresholds

Year SFT
2025 €2 million
2026 €2.2 million
2027 €2.4 million
2028 €2.6 million
2029 €2.8 million

Why is the SFT being updated?

The Standard Fund Threshold is being updated to reflect changes in salaries, returns on investment and the cost of living, which have all increased significantly over the last decade while the threshold remained unchanged.

This has meant that long-term savers have been affected by these tax rules, which has discouraged saving in some cases – something the government is keen to avoid doing.

How does the Standard Fund Threshold work?

The Standard Fund Threshold is the limit that you can have in your pension fund without paying additional tax, known as Chargeable Excess Tax. This 40% tax is payable on excess savings over the upper cap, which will be set at €2.2 million in 2026, rising by €200,000 per year until 2029.

Chargeable Excess Tax is payable within three months of the liability arising. 

If you have already taken benefits and retired a pension fund, you can still benefit from the changes to the SFT over the coming years. For example, if you retired a fund of €1 million in 2025, you will have used up 50% of the SFT, with €1 million before you reach the limit. 

In 2026, you will still have reached only 50% of the cap, leaving you with €1.1 million before you reach the threshold, and this will rise each year until 2029.

How to maneuver around the SFT?

If your pension pot exceeds the SFT or is likely to do so in the future, there are some actions which you can take to reduce or eliminate any chargeable excess, which may be beneficial for tax purposes. Depending on your situation, you may wish to:

You will likely be better off receiving a salary instead of making further pension contributions that would place your pension over the Standard Fund Threshold. One of the most tax-efficient transactions you can make outside of a pension is an investment that’s covered under the Employment Investment Incentive.

As per Revenue, tax paid at a rate of 20% on the amount of cash lump sums taken from pensions between €200,001 – €500,000 may be offset against tax arising from any chargeable excess over the Standard Fund Threshold.

Because of the SFT, there is an effective limit on the risk/reward profile of high equity investments. Over the short or medium term, there can be a relative degree of fluctuation, and because of an effective taxation of 68.8% over the SFT, the upsides of investing in such funds can be limited.

Accessing your pension early may benefit you in the long run. By triggering a Benefit Crystallisation Event, you likely transfer the remainder of your pension to an ARF. The value of your pension is judged at retirement, with any growth inside an ARF subject to their own tax rules but not the SFT.

It might be possible to utilise Personal Retirement Savings Accounts (PRSAs) in such a way that the maximum tax efficient amount is accessed as early as possible with the remaining balance deferred until such a time that the individual wishes to incur the chargeable excess tax charge.

Steps to take if you are concerned about reaching the SFT?

If you are in any way near reaching the Standard Fund Threshold, you should review your situation with a qualified financial expert to ensure you take the right steps and plan your finances in the most tax-efficient way possible. 

The best path for you will depend on a number of factors, such as your current pension pot, your age, and desired outcomes. We highly recommend speaking to a financial advisor to fully understand the implications of the new SFT for your unique circumstances.

Standard Fund Threshold FAQs

In 2025, if your pension pot exceeds 2 million, the excess will be hit with a 40% chargeable excess tax. This limit will rise to €2.2 million and again by €200,000 each year until 2029.

A PFT is a higher individual tax-relieved pension fund which may apply if your pension was already above the SFT on the valuation date.

The SFT is likely to increase in line with salaries from 2030, however any increases will depend on government policy decisions.

Not necessarily. Many people who are nearing the SFT choose to redirect contributions to other more tax-efficient options instead of ceasing contributions entirely.

Each time you draw down funds, another SFT test is triggered. However this is only tested against the remaining unused portion of your lifetime limit.

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