Budget 2025: Impacts on Pensions & Investing
There are a number of elements of benefit arising from this recent budget. In order to evaluate same, and potentially optimise these benefits, please speak to us on 021 452 1328 or email.
Auto Enrolment (AE) Update:
The long-awaited Automatic Enrolment Retirement Savings Scheme (AE) is set to come into effect on 30 September 2025, as confirmed by the Minister for Social Protection. Originally anticipated for January 2025, the scheme is designed to address Ireland’s low rates of private pension coverage, particularly among employees without access to an occupational pension.
By automatically enrolling employees without existing pension arrangements, the scheme aims to increase participation in long-term savings plans and reduce reliance on the State Pension. The move is in response to concerns that many workers are not adequately preparing for retirement, particularly given the current demographic trends and increasing life expectancy.
This delayed start date provides employers and stakeholders additional time to prepare for the transition.
There are many advantages however for employees who are members of Company Incepted Occupational Pension Schemes. Given that employers are having to incur this new cost in any event, many are electing to control matters and are engaging with us to incept their own Company Pension Scheme. Talk to us, if you would like to hear more on the options and benefits.
Pension Standard Fund Threshold Changes:
The Department of Finance’s decision to raise the Pension Standard Fund Threshold (SFT) to €2.8 million by 2029 will largely benefit senior public servants, business owners, and those in defined benefit pension schemes. This change, expected to be enacted in this year’s Finance Act, responds to recommendations from a recent review led by Dr. Donal de Buitléir. The SFT, first introduced in 2005 to cap tax-relieved pension benefits, currently sits at €2 million, with excess amounts subject to penal taxation rates. The phased increase to €2.8 million will begin in 2026, with annual increases planned through 2029.
The review was triggered in part by concerns over the punitive pension tax treatment affecting senior Gardaí, which had deterred applicants for senior positions. While the review recommended an immediate increase to €2.8 million, the Department of Finance opted for a gradual approach. Alongside the SFT increase, the review proposed reducing the capitalisation factor for public service and defined benefit pensions, which the government plans to evaluate further. No immediate changes are expected for 2025, but clarity on the phased approach may be provided in upcoming announcements.
Dr. de Buitléir's review also recommended removing the current €115,000 earnings cap for pension contributions, but this has yet to be addressed. While some increases in pension contribution limits are anticipated, they remain far below the levels seen in the past. For most workers, accumulating a pension fund close to the €2.8 million threshold will remain unattainable. However, further developments are expected with the release of the Finance Bill 2024, which may include additional changes impacting pension regulations for the coming years.
Capital Acquisitions Tax, Inheritance Tax Changes:
Changes to the gift and inheritance tax regime will take effect as part of Budget 2025, impacting capital acquisitions tax (CAT) thresholds. These changes, effective from 2 October 2024, represent the first update to the tax-free thresholds since Budget 2020. The adjustments aim to alleviate the tax burden on beneficiaries, particularly those receiving inheritances from close family members.
The Group A threshold, which applies to inheritances received by children from their parents, will see a substantial increase, rising from €335,000 to €400,000. This is expected to provide significant relief to families passing on family assets or estates to the next generation. The Group B threshold, which covers inheritances involving grandchildren, siblings, nieces, and nephews, will also increase from €32,500 to €40,000, broadening the tax-free amount for extended family members. Finally, the Group C threshold, which applies to all other beneficiaries, will increase from €16,250 to €20,000.