It remains, for the time being, something of an odd one out: the retirement obligation (ODV). A scheme devised to remove the issue of self-administered pensions from the political agenda. Not well thought through; it’ll work out fine in practice.
Pension liability and death
We recently described the problems that can arise when a director and major shareholder (DGA) entitled to the old-age pension obligation (ODV) passes away. Until recently, it was not possible to take the old-age pension obligation into account in estate planning. It has only been in existence since 1 April 2017. In the context of settling a death, an ODV is fundamentally different from a pension.
See our article Retirement liability (ODV) and death.
Pension obligations and divorce
Even in the context of a divorce, a retirement obligation is fundamentally different from a pension. Pensions are subject to the Pension Equalisation Act. The settlement of a pension takes place separately from the settlement of the community of property or the terms of the marriage contract. However, the Pension Equalisation Act may be excluded from application. This can be arranged in the marriage contract or in the divorce settlement agreement.
The retirement liability is settled within the community of property or under a prenuptial agreement. After all, under civil law, it is a claim. But it is one with special tax implications. If you do not handle it in accordance with the tax rules, the retirement obligation becomes tax-improper. In that case, the full value of the retirement obligation is taxed in one go.
Questions & Answers
The Central Point of Contact for Pensions (CAP), a division of the Tax and Customs Administration, has published a Q&A on its website entitled ‘Transferring or converting pension entitlements in the event of divorce’. This Q&A (number 18-006) shows that, in the event of divorce, the partners can choose from the following tax-free options.
- The value of the entitlement to the ODV may be (partially) transferred to the former partner. The date on which payments are due to commence then depends on the former partner’s state pension age. The former partner may convert the transferred portion of the ODV into an annuity. Following the former partner’s death, the remaining ODV instalments must pass to his or her heirs.
- The director and major shareholder may also convert the ODV (in whole or in part) into an ODV to which the former partner is entitled to receive the instalments. The former partner will then have no more than a right to receive payments from the ODV. The ODV remains a claim of the DGA. If the DGA dies, the remaining ODV instalments must pass to the DGA’s heirs. This may mean that the payments to the former partner must cease at that point.
- It may also be agreed that the payments, after deduction of payroll taxes, are paid to the director and major shareholder, who then passes on (part of) the amount to the former partner. The director and major shareholder then claims the payments passed on as a personal allowance. The former partner declares the amounts received as a taxable periodic payment.