The dec 2010 budget put a €2.3m tax free cap on pensions. Those with pension funds valued above this cap were to apply for a personal fund threshold (PFT) to hold on to those funds tax free. I am in my early 50s and am approaching the €2.3m cap from the combination of a db company fund and an avc. I don't understand fully how things will work going forward : I expect to add to my pension funds such that I would end up having a tax liability ... I presume as I am not over the cap NOW that looking for a PFT doesn't make sense but I would appreciate some advice. Apologies if I am not understanding how the new proposal works. Thank you
Think you've missed the deadline anyway but broadly speaking if your fund is worth less than €2.3M now, you probably had no scope to apply for an increased threshold.
the cap was set at €2.3m based on value of total pension fund as at 5th Dec 2010. If your pension is a DB scheme, a valuation factor of 20:1 is used to capitalise the DB pension. Also, as at 5/12/2010 it is only the accrued pension (based on salary and service to 5/12/2010) that is taken into account in determining whether you should have applied for a PFT.
So if the notional value of your accrued pension (+AVC) was less than €2.3m on 5/12/2010 you caould not apply for a PFT.
However if you continue to accrue additional pension (by continuing to work into the future) you seem to be suggesting that the ultimate notional value at retirement could exceed €2.3m (i.e. a total pension of over €115,000 p.a.). If so, you will be hit with the double taxation on the excess.
What to do?
Seek advice from your Trustees/Pensions Consultant as to whether you will exceed the cap
Possibly cease any AVCs (no point in adding to the problem)
Retire early (if possible)
Seek information as to whether your DB sceme is fully funded and thus whether it is likely that you will in fact get your full pension expectation