Since 1 April 2017 a director-major shareholder (dga) is no longer allowed to build up a pension under his own management. What options does the dga have?
Pension
The dga is allowed to build up a pension ‘as normal’. However, he may no longer deposit this with his own private limited company. Contributions must be deposited with an authorised insurer. These funds are then withdrawn from the BV's assets.
In this context, the dga is considered an employee of the BV. The pension is part of the employee's remuneration. If the pension premium is for the account of the employer, it is not subject to wage and income tax. If the premium is for the account of the employee, it may be deducted from wages through the employer's payroll. The gross amount of the pension premium yields to the pension insurer. The pension benefits will, of course, be taxed in due course. For the gross premium to be deducted, the pension scheme must meet all tax standards.
Annuity
An annuity is similar to pension insurance. Premiums must also be placed with an authorised insurer. But in addition, the deposit for an annuity may also be paid into an escrow bank account. You should then realise that a bank account is something substantially different from an insurance policy.
The deduction of the premium or deposit for an annuity does not go through the employer's payroll. It is a private matter of the employee, which has to be processed in the income tax return. Deduction is allowed to the extent there is sufficient room for it. This space depends in particular on your income for the previous year and the pension accrued in that year. Are you curious how much annuity premiums or contributions you can deduct? VWGNijhof will be happy to calculate it for you.
If the premium or deposit for an annuity is for the account of the employer, it is first taxed as wages. The deduction must then be realised in the employee's income tax return.
The annuity insurance payment and withdrawals from the escrow savings account will be subject to income tax in due course.
Pension and annuity
It is also allowed to both accrue pension and pay or deposit premium for an annuity. However, the accrued pension (via the so-called factor A) is taken into account when calculating the room for the deduction of the premium or deposit for the annuity.
If you build up extra pension afterwards, it may result in earlier deduction of premium or deposit for an annuity being reversed. This is because a major advantage of pension over annuity is that pension offers much more scope to save tax-free for your old age. Moreover, pensions offer wider opportunities to make up for past (pension) deficits.
Net
Of course, you can also save net for your old age. This can be in the form of savings, but also in securities, real estate or other types of investments. The company in your private limited company can also form the savings pot for your old age.
You are then not bound by the rigid tax rules surrounding pensions and annuities. And you can spend the funds when and how you want. On the other hand, in case of calamities, such as bankruptcy, the funds deposited in a pension or annuity may not be taken away from you in full.
With a financial planning you can clarify which funds are earmarked for your old age. Tax planning prevents your returns from being skimmed off by taxes more than necessary. Of course, you can turn to VWGNijhof for these plans. You have to be disciplined not to use up the funds you earmark for your old age before then.