Pension savings: saving or insuring?

The legal pension which the government will pay you, will in the future most likely not be sufficient. Therefore it is necessary to save a nest egg for after your retirement. By making pension saving, this can be done in a tax-efficient way.

Why pension savings?

The ageing of the population makes that government spending is becoming more under pressure. If you want to be assured of a carefree retirement, you should make some savings yourself. Also the government is aware of this. Therefore it arranged for a tax-friendly way to make pension savings. Through the pension savings system you can save up to 910€ in a tax-friendly manner. Through your tax return you will get refunded 30%, which amounts to 273€.

However, later you will be taxed on the allowance. We will in this instance not further elaborate on this.

Two methods: savings or insurance?

There are two ways to make pension savings: through a pension savings fund (with a bank) or through a pension savings insurance (with an insurance company). A pension savings fund does not guarantee any minimum return. The fund invests after all in shares: this can gain a good profit, but you also have the risk to lose money, you are after all dependent on the evolution on the stock market. On the other hands, a pension savings insurance gives the necessary guarantees.

Conditions

The tax payer

You should be a citizen of Belgium or any other country of the European Economic Area (EU + Liechtenstein, Iceland and Norway),

You should be at least 18 years and maximum 64 years old,

You did not benefit earlier from a favorable tax regime when receiving savings, capital or buying off values, unless after decease.

The contract

The contract should have a duration of at least 10 years.

You should enter into this agreement with a recognized institution or company. The deposits should as a general rule be made in Belgium. The European Commission however finds this obligation contrary to European law.

The payments during a tax year can only be made for one single collective savings account or one single individual savings account or one single savings insurance.

Pension savings fund

You can sign up with a collective pension savings fund or open an individual pension savings account with a financial institution or a stock broker.

If you open an individual savings account, you should impose in written on the bank that the deposits, receivables and gains of the sale of the securities will be invested following the legal rules of the Income Tax Code. You can also give the bank the order to invest these sums.

These legal rules described how these sums should be invested (and in what proportion). This is a very detailed regulation, which is here just briefly quoted:

maximum 20% of the investments can be made in another currency than the euro;

maximum 75% of the assets can be invested in obligations and other debt securities transferable on the capital market and in mortgages;

maximum 75% of the assets can be invested directly in certain shares or other securities considered as shares within the foreseen limits and modalities;

maximum 10% of the amounts can be invested in cash on an euro account or in a currency of a member state of the European Economic Area, with a credit institution which is recognized and controlled by a supervisory government of a member state of the European Economic Area.

Pension savings insurance

The savings insurance should be entered into with an insurer established in Belgium, which is recognized as an insurance company for life insurances.

Which option is the best

You should start with pensions savings as soon as possible: the longer you save, the more profit you get from the capitalization of your savings (this 'snow ball effect' increases every year).

Which option you should choose, depends on the moment when you start with pension savings. The following can be considered as a general rule:

Up to the age of 45: you should opt for a pension savings fund: you can affort a greater risk.

Between 45 and 50: you can still opt for a pension savings fund, but you should take a more neutral fund.

When you are approaching your retirement age: you better choose for the security of a pension savings insurance.

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