On 30 May 2023, the Senate passed the Future Pensions Bill. This bill contains sweeping changes to our pension system. But it also equalises the possibilities for tax-facilitated accrual of an old-age provision by entrepreneurs, self-employed persons and DGAs with those of employees. This gives them (much) more room to build up such a provision and this widening will come into effect as early as 2023.
Deduction of premiums/annuities
The widening concerns the possibilities to deduct the premium/investment for an annuity from income from work and home (box 1). This margin is calculated per year (the annual margin). The annual margin not used in one year may be used in subsequent years (the reserve margin). The relaxations effective from 2023 are:
- the annual margin is 30% of the premium base (this was 13.3%);
- the deduction threshold is raised from €13,646 to €16,322 (figures for 2023) and this threshold remains fully applicable with regard to part-timers;
- the reserve margin becomes maximum € 38.000 (this was a maximum of €8,065, for state pensioners €15,922);
- the reserve space includes the previous 10 years (these were the seven previous years).
Example
A DMS, who does not accrue a pension, with a salary of €120,000 can deduct a total maximum of €69,103 in premiums/insertions for an annuity from his income in box 1 in 2023, depending on other income and deductions, at the highest rate (49.5%). This amount consists of the annual margin: 30% * (€120,000 -/- €16,322) = €31,103 and the maximum reserve margin of €38,000.
Of course, the exact amount of deductible premium/insurance has to be calculated individually for everyone.
Deposit
However, the amount of the premium/deposit must actually be deposited with the insurer or bank where the annuity is placed. Obviously, liquidity must be available for this. The deposit is deducted in the year in which the premium/inlay was paid. The annual margin is therefore calculated based on the income of the previous year.
Advantages
The deduction provides a tax benefit in the year of payment of the premium/contribution. Distributions will be taxed in due course. The tax deferral obviously provides a benefit and a lower rate may apply at the time of distribution.
Another advantage is that the funds deposited in an annuity, to the extent that the premium/investment has been deducted for income tax purposes, cannot, in principle, be extracted in case of bankruptcy or debt restructuring to co-pay creditors.
Disadvantage
The disadvantage of a paid premium/inlay for an annuity is that these funds can no longer be spent freely. But, of course, you can also see this as an advantage: these funds are permanently set aside for the financial provision of your old age.
Premium/deposit
For this, we talk about premium and deposit. Premium is deposited on a annuity insurance. Amounts paid into a annuity bank savings or investment product are referred to as inset. Both products each have their specific advantages and disadvantages.