The self-administered pension scheme (PEB) is to be abolished. This was announced by Wiebes, State Secretary for Finance, in a report following a written consultation with the House on this subject.
Self-management
A self-administered pension is a pension scheme provided by a private limited company (B.V.) in which the pension beneficiary holds 10% or more of the capital. The contributions required to build up the pension are not paid into a pension fund or insurance company. Instead, the private limited company that has committed to the pension establishes a pension provision on its balance sheet. The additions to this provision are charged to the profit subject to corporation tax.
Abolish
Abolishing self-administered pensions means that it will no longer be possible to keep the contributions for a pension entitlement granted to a director and (major) shareholder of a private limited company within the company’s own accounts. Of course, a director and (major) shareholder can continue to accrue pension entitlements just like a “regular” employee, but this must then be arranged through a pension fund or insurer. The contributions payable for this purpose are deductible from the profit subject to corporation tax.
In addition, the director-major shareholder, like any Dutch citizen, can build up a retirement provision under favourable tax conditions in the form of an annuity insurance policy or by making contributions to an annuity savings scheme. The premiums required for this must be paid from the director-major shareholder’s net income, but may be deducted from the income on which income tax is payable. The deduction of the annuity premium or contribution is limited to the annual allowance and the reserve allowance, which must be calculated individually each year.
Accrued entitlements
A logical question is what should happen to pension entitlements already accrued under self-administration. Wiebes offers two options for this:
– surrender;
– place it in a self-administered retirement savings scheme (OSEB).
The best course of action for the director-majority shareholder depends on exactly how Wiebes intends to implement both schemes. We will have to wait for the actual wording of the bill to find out. In the report on the written consultation, Wiebes merely outlines the broad principles.
Lump-sum settlement
A lump-sum settlement of accrued entitlements means that, over 70% of the tax value Income tax must be paid on pension entitlements. The tax value of the pension entitlement is stated annually in the company tax return of the B.V. (the pension provision). In many cases, the annual accounts now state a value for the pension provision based on valuation principles other than tax principles (commercial principles). This commercial valuation results in a higher provision than the value determined on the basis of tax principles.
Self-managed retirement savings
Self-administered retirement savings will involve converting the tax value of the pension provision into a kind of annuity savings product, not held with a bank or insurer, but with the director’s own private limited company. From state pension age (to which a maximum of 5 years may be added if the director and major shareholder continues to work), payments must then be made over a minimum period of 20 years, and income tax is payable on those payments.
Entrance
Wiebes still wants self-administered pensions with effect from 1 January 2017 abolish. Naturally, the necessary legislation must have been passed by Parliament before that date.