An individual pension policy (Individuele Pensioentoezegging or IPT) is a so-called group insurance policy for the self-employed. Executives with an individual pension policy will benefit from paying their back-service in 2017 still. If your company pays your back-service before 31 December, it will enjoy higher tax benefit and build a higher supplementary pension for the executive in question.
The Summer Agreement of the Belgian government of Prime Minister Charles Michel is also affecting the individual pension policy. As corporate tax rates are about to fall next year, it is more advantageous to pay your back-service for your supplementary pension scheme this year. A back-service is a premium paid retroactively for years of work in the past.
The optimisation of your existing annual premium or the start-up of a new contract are also extra interesting in 2017 for the same reason, although the following example focuses on the back-service alone.
So why is paying your back-service before 31 December so interesting? This is best explained in 3 steps:
1. If your company pays a back-service under the group insurance policy or individual pension policy, it builds your nest egg and it can deduct the paid amount from its taxable income.
2. For example, if your company pays a back-service of 10,000 euros into your supplementary pension scheme, this will not be subject to any corporate tax. If we assume that you are currently paying 33% in corporate taxes, your company’s benefit will be 3,300 euros.
3. It was decided in the Belgian government’s Summer Agreement that corporate tax will fall to 29% from 2018 and to 25% from 2020. This means that if your company were to contribute another 10,000 euros in back-service, its benefit will only be 2,900 and 2,500 euros respectively.
In addition to the impact of lower corporate taxes on the individual pension policy, there are two more reasons experts say it is particularly interesting to pay the back-service premium in 2017:
1. The 80% rule could be calculated in a less beneficial way from 2019. This will probably mean a reduction in possible back-services and pension premiums. At the moment, the 80% rule means that together, your legal pension and your supplementary corporate pension must not exceed 80% of the last gross salary of your career.
2. From 2018 or 2019, the government would like to double the so-called Wijninckx contribution from 1.5% to 3%. This contribution is payable on all group insurance or individual pension policy premiums – including back-service – that exceed 31,836 euros (2017).
If you already have an individual pension policy, we will be pleased to examine how we can optimise your annual premium or back-service. If you do not have a group insurance policy or individual pension policy, we can explore the market with you to see which insurance package offers you the most pension benefit.