The government wants to offer the self-employed the chance to set up a full pension with supplementary pension schemes, such as an individual pension policy (EIP) and an optional supplementary pension for the self-employed (PLCI). The current statutory pension for the self-employed is often insufficient to maintain the same living standard after retirement.
On 1 August 2016, the minimum pension for the self-employed was fully brought into line with the minimum pension for employees if certain conditions are met. Of course this is not enough to maintain a normal living standard, but it is a step in the right direction. Together with the tax incentives of supplementary pension schemes such as PLCI/VAPZ and EIP/IPT, entrepreneurs can now look forward to a decent pension.
The optional supplementary pension for the self-employed (PLCI/VAPZ) is a private pension plan that offers a considerable tax incentive to the self-employed. PLCI/VAPZ allows you to deduct up to 8.17% of your limited professional income on your personal income tax return with a premium up to 3,127.24 euros (2017). You can also take out a social PLCI/VAPZ plan, which allows you to deduct up to 9.40% of your limited professional income with a premium up to 3,598.05 euros (2017).
PLCI/VAPZ is particularly interesting because the paid premiums can be deducted as social contributions: you can always deduct the premiums, even if you opt for a system of flat-rate professional expenses.
The premium reduces your taxable professional income, which results in taxes at the marginal rate. The reduction of your professional income also means that you will pay less in social contributions.
The tax payable on PLCI/VAPZ at maturity is also very low, which constitutes yet another tax incentive.
An individual pension policy (EIP/IPT) is a tax-friendly form of company pension savings. As a business manager or director, you are the direct beneficiary of a company’s insurance policy that is tailored to your needs. You can determine the capital level yourself according to the 80% tax rule.
EIP/IPT is also a perfect solution to build extra pension rather than pay out a higher salary or dividends. EIP/IPT is a deductible professional cost for the company and will give you a pension that is favourable from a tax perspective at maturity.
PLCI/VAPZ and EIP/IPT plans allow you to draw down a capital advance to buy, build, renovate or improve a property. This capital can be used to buy a home, lay out a garden, purchase a new kitchen or have solar panels installed.
The property does not have to be your first home or only home. It can be located anywhere in the European Economic Area (EEA).
Financing your real estate project with an advance of your supplementary pension is an attractive alternative to a mortgage, as it avoids valuation fees, administrative fees, notary fees or mortgages fees, allows easy repayments and so on.
You can draw down up to 60% to 70% of your accumulated EIP/IPT reserves and possibly up to more than 90% of your PLCI/VAPZ. However, you must bear in mind that the funds you are investing are your future pension.