The Government has laid the egg regarding the abolition of self-administered pensions (PEB). Of course, it remains to be seen whether Parliament will hatch it in the same way.
Chamber letter
The in the letter The details set out in the report to the House of Representatives dated 1 July 2016 will be incorporated into a bill that will form part of the tax plans for 2017 to be presented by the Government on Prinsjesdag 2016. The abolition of the PEB should then come into effect on 1 January 2017.
Phasing out in-house management
State Secretary Wiebes is talking about a phase-out of the self-administered pension scheme. The period within which the pension can be settled has been extended to three years compared with previous plans. Wiebes refers to a “tax-neutral” settlement, but this involves a settlement at a reduced rate. The discount on the payroll tax due on the surrender of pension entitlements will be staggered and will amount to
- in 2017: 34.5%;
- in 2018: 25%;
- in 2019: 19.5%.
To prevent any anticipation effects, the balance sheet value of the self-administered pension scheme as at the end of 2015 forms the basis for the settlement payment upon surrender.
Retirement savings obligation
Directors and major shareholders who are unable or unwilling to surrender their self-administered pension scheme may write it down to its tax value without any tax consequences. This tax value can then be converted into a retirement savings obligation.
Pension squeeze
One of the main reasons still cited for abolishing self-administered pensions is that this would relieve directors and major shareholders of the pension squeeze. After all, the high (commercial) value of the pension provision – resulting from low interest rates – often prevents the payment of dividends because the company does not have sufficient free capital.
Pension for the director and major shareholder
The abolition of self-administered pensions does not mean that a director and major shareholder (DGA) is no longer permitted to accrue pension entitlements. It simply means that those entitlements can no longer be held within their own private limited company. The director and major shareholder may, of course, just like any other employee, accrue a pension with an external insurer. However, they are not obliged to do so. For example, they may also regard their private limited company as a savings pot for their retirement, by supplementing the state pension (AOW) with dividends from the company when the time comes.
Extension of the first corporate tax bracket
In the letter to Parliament on the PEB, Wiebes also states that the Government intends to extend the first corporate tax bracket, where a rate of 20% is applied instead of 25%, from the current €200,000 to €250,000 in 2018 and to €350,000 in 2021.
Opinion
Fortunately, the Government has finally set out a definitive position on self-administered pensions for directors and major shareholders. However, until the bill has been debated in Parliament, it remains uncertain whether this position will actually be enshrined in law. There is, incidentally, sufficient time to carefully consider whether or not to surrender the self-administered pension at a discount, as any such surrender would then have to take place during 2017, 2018 or 2019. The position of the pension partner remains an important consideration in this regard.
The option to take a lump-sum payment is, of course, of particular interest to private limited companies with sufficient financial reserves. However, even for such companies, it is important to consider whether it might not be wiser to have the pension entitlement paid out in the usual way.