The tax on supplementary pension capital accumulated through company and employer contributions in group insurance policies and individual pension commitments (EIP/IPT) was increased for endowment benefit payments at a certain age. The following rates are applicable from 1 July 2013:
- Payment at age 60: 20%
- Payment at age 61: 18%
- Payment at age 62 to 64: 16.5%
- Payment at age 65: 16.5%, unless the affiliate effectively stayed in work until at least that age. In that case, the rate is 10%.
The measure basically means that taking out new (internal) private pension commitments or increasing existing ones is no longer possible from 1 January 2012 for purely internal commitments and from 1 July 2012 for commitments financed by insurance policies for executives.
Existing commitments are frozen at the current level of the deferred acquired pension capital acquired at the end of 2011.
2.1. For example
In 2010 an exclusively internal pension commitment is made to a 50-year-old executive. The commitment states that the executive will be paid €100,000 at the age of 60.
The valorised years are: 10 years outside the company (“back service”), 10 years at the company (“back service”) and 10 more years working for the company in the future, i.e. 30 years in total.
At the end of 2010 the executive has already worked 20 of those 30 years. At that time, the acquired end capital is therefore €66,666.67 (66.67%). Because the accounting is updated (hypothetically at 4%), there is (only) a pension commitment of €45,037.61 in the books at the end of 2010 (financial year = calendar year).
At the end of 2011, when the executive has worked 21 of the 30 years, the acquired capital is €70,000.00 and the current value of the entered facility is (only) €49,181.07.
2.2. New rules for existing commitments
Existing internal pension commitments to self-employed company representatives can remain internal until the end of 2011. However, they can also be externalised (voluntarily). ‘Until the end of 2011’ means that the pension commitment amount at the end of the last financial year closing before 1 January 2012 can be kept.
In our example, this means that the facility remains frozen at €49,181.07 (not €70,000.00).
After 2011 no further nominal additions to the pension facility are allowed. The existing internal provision is frozen at the current level of the deferred acquired pension capital at the end of 2011 (€49,181.07 in our example). It is even impossible to allow the facility to grow up to the ‘deferred acquired pension capital’.
The existing private commitments must therefore be adjusted.
If the existing provisions are externalised, the 4.4% premium tax is exempted. Externalisation is possible without any time limitation. For executive insurance constructions there is time until 30 June 2015. In that case the externalisation is tax neutral, provided that the 80% rule is followed (benefit in kind in proportion to the overrun).
The 80% rule is now generally known. This rule basically means that when accumulating a supplementary pension, contributions are only eligible for tax benefits if the benefits paid at retirement – expressed in annual annuity including the statutory pension – do not exceed 80% of the last normal gross annual salary, taking into account the normal duration of the professional activities. This means that the deductibility of the pension contributions is linked to a relative limit: the accumulated pension can only result in a benefit that is equivalent to 80% of the last gross salary. Above this limit the paid contributions are no longer tax deductible.
The coalition agreement initially discussed the introduction of an absolute limit for the 80% rule: pension benefits were not to exceed the highest state pension (€75,406.20 per year in June 2015). In the end this absolute limit will not be introduced. However, this measure will be replaced with a special (self-employed) social security contribution for high premiums (sometimes referred to as the ‘Wyninckx contribution’). The scheme is being introduced in stages: the provisional scheme was extended to 31 December 2016 and in principle the final scheme should come into effect on 1 January 2017 (subject to any further delays).
3.2. Provisional scheme
An increased social contribution is due for payments resulting in an accumulated amount exceeding the highest state pension (€75,406.20 per year in June 2015). The contribution is 1.5%.
This scheme levies an additional 1.5% tax on the amount exceeding the €30,000 limit (to be indexed annually – the current amount is €31,212) for the premium/contributions per year.
In principle the special contribution is tax deductible as a social security contribution.
3.2.1. The self-employed
Any payments towards a Supplementary Pension for the Self-Employed (VAPZ/PCLI) should not be taken into account. The 4.4% premium tax and the 8.86% social security contribution are not included in the tax base. The €30,000 limit (to be indexed annually – currently €31,212) is to be assessed:
- Per affiliate
- Per company/employer
- Per year (considered per calendar year)
The company must make the payment by 31 December. The pensions database of non-profit organisation Sigedis calculates the payable contribution (see our annual newsletters in this regard).
Declaration and collection follow the quarterly declaration of the social security contribution, so payment must be made by 31 January the following year. Non-profit organisation Sigedis (pensions database) calculates the amount for the employer (see our annual newsletters in this regard).
In order to determine the limit of €30,000 (currently €31,212), the following elements are taken into account:
- Employer contributions – in other words, the accumulation of the reserves
- Contributions towards lump sum payment at a certain age, in the event of death and a waiver of premium. Single “back service” and “future service” payments also count.
3.2.3. Several pension plans
If the company has current pension plans for one or several insured persons (employees or self-employed persons) with several insurers, the Wyninckx contribution will be assessed for all these plans together.
3.3. Final scheme
In principle the final scheme will come into effect on 1 January 2017. Under the final scheme, 1.5% will be levied if the sum of the statutory and supplementary pensions exceeds the ‘pension target’ on 1 January.
The Programme Law introduces a link between information communicated to the supplementary pensions database (‘Sigedis’) and the tax-deductibility of the supplementary pensions (both during the accumulation stage and at the time of payment) from 1 January 2013.
This means that the employer contributions and premiums are not tax deductible if the relevant information was not communicated to Sigedis.
This last item is not a result of the Programme Law of 22 June 2012. In early 2012 it had already become clear that the calculation of taxable benefits in kind was going to change, specifically benefits in kind such as company cars, ‘company residences’ and free heating or electricity.
This ‘salary increase’ is good news for the supplementary pensions, as a ‘higher salary’ means that the 80% limit also goes up. The 80% rule states that these premiums are deductible for the company, provided that the statutory and supplementary pensions annuity does not exceed 80% of the last normal gross salary. This ‘normal’ salary includes the ordinary salary as well as all benefits in kind.
This means there are optimisation opportunities.
An important condition (for self-employed persons) is that the benefits in kind are calculated on a monthly basis. If this is not the case, they cannot be included in the calculation of the 80% limit. In principle it is also possible to pay a catch-up premium (the so-called ‘back service’) based on this newly determined benefit and the corresponding ‘salary increase’.