Pension Strategies Before & After the New Standard Fund Threshold Cap

If you’re a business owner, company director, or high earner with a sizeable pension pot, you’ve probably heard of the Standard Fund Threshold (SFT),  and maybe even feared crossing it.

The SFT is the maximum value your pension can reach before you face the Chargeable Excess Tax (CET), a 40% tax on the amount above the limit, taken before you even draw your pension income.

For years, that limit has been €2 million. From 2026, it increases in steps until it reaches €2.8 million in 2029. This is one of the most significant pension planning opportunities in over a decade. However, the real win comes from combining 2025 positioning with a strategic growth plan for 2026–2029.

It’s a strong opportunity, but the decisions you make now will shape whether you enjoy the full benefit or see a significant share go to Revenue.

Why the Standard Fund Threshold (SFT) Matters

The Standard Fund Threshold (SFT) is essentially a cap on your pension’s value. If your fund exceeds its limit, the excess is subject to a 40% Chargeable Excess Tax before you even access it and then taxed again as income when you draw it down.

For many people, €2 million seems like a distant target. But if you’re already close, or have reached it, you may have stopped contributing altogether to avoid the penalty. While understandable, this approach can stall the growth of your retirement fund and limit your long-term financial security.

More Room to Grow Your Pension Tax-Efficiently

The phased SFT increases give you up to €800,000 extra room to grow your pension tax-efficiently over the next four years. That’s a massive planning window for business owners and directors who have paused contributions.

How to Add More to Your Pension in 2025, Even Above the Limit

The official SFT increase starts in 2026, but there’s a move you can make now.

Although the official cap is €2 million, a little-known rule means your effective limit is closer to €2.15 million before the 40% Chargeable Excess Tax (CET) applies. This is thanks to the way lump sums are taxed, and it can give you extra room to top up your pot this year without triggering the penalty.

Understand Why €2.15 Million Is the Real Sweet Spot

At retirement, you can take 25% of the fund (up to €500,000) as a lump sum:

First €200,000 → 0% tax

Next €300,000 → 20% tax (€60,000)

If you only take this lump sum and don’t draw down the rest (e.g. via an ARF or annuity), the full fund isn’t tested against the SFT yet, only the lump sum is. That can make your future tax position trickier.

Here’s the interesting part:

If your fund is €2.15m, you go €150,000 over the SFT and must trigger a Benefit Crystallisation Event (BCE), which tests the whole fund.

The €150,000 excess is taxed at 40% CET → €60,000 tax.

But here’s the maths:

Result:

You lose €60k in tax, but you gain €150k gross, leaving you €90k better off than if you had stayed at €2m.

The “real” limit for maximising your pension before the tax becomes inefficient is often around €2.15m. Above that, the 40% penalty starts eating too much of the extra growth.

Why This Matters in 2025

If you’re close to €2m now, you can:

• Let your fund grow to around €2.15m this year
• Avoid CET completely
• Be perfectly positioned to benefit from the upcoming SFT increases
  

2025 is your window to reach the effective limit, but avoid crossing it.