Indices and thresholds
Internal pension provision versus IPT
In brief:
Externalizing means that a company chooses to transfer its internal pension provision into an IPT (an individual pension commitment funded by your company).
The main reasons for choosing externalization are:
- ensuring that the pension capital is taxed at a lower rate
- avoiding that the pension capital is taxed at the marginal rate
- avoiding that the director has to resign their mandate
In more detail:
Self-employed company directors could, until 2012, build up a supplementary pension via a private pension agreement with their company. A pension capital was financed via internal provision. This is no longer possible.
Companies involved had, and still have, two options.
Either the financing of that internal provision was stopped and the amount of the internal provision frozen. As a result, a provision still appears on your balance sheet. If you chose to leave the existing provision (in whole or in part) in the company, you must amend the contractual terms of the internal pension promise. The company must also provide mandatory information to the pension database (Sigedis). You can check whether this is in order by consulting your MyPension supplementary pensions file. If the internal provision was correctly registered, you will see on the overview of supplementary pensions (usually on the 4th page) the notice "You still have x internally financed pension promise(s) with:".
Or your company could, and can still, externalize the existing provisions and, where applicable, also provide for future financing externally. In other words: you can transfer this commitment to an insurer, thus via an IPT. Please note: externalization is best done more than 5 years before the expected payout date.
Because not every company has sufficient cash to carry out the full externalization of the internal pension promise, the company can opt for a phased externalization.
| Internal provision | Externalization to IPT | |
|---|---|---|
| Overfunding risk | Building up provisions on the balance sheet, so no actual payment | Payment of premiums, so actual payment |
| Tax advantage | Provision is exempt from corporation tax (within the 80% limit) | Premiums are deductible from corporation tax (within the 80% limit) |
| Premium tax | Not applicable. | The amount of the internal pension promise that is externalized will not be subject to the premium tax of 4,4% nor to the Wijninckx contribution.<br>The externalization will take place tax-neutrally, subject to compliance with the 80% rule. <br>This exemption applies indefinitely in time under current legislation. |
| Management costs | None | The insurer's usual management costs. |
| What happens upon payout? | The mandate must be relinquished<br>(even if unpaid). This can be a particular problem in doctors' companies. | The mandate may be continued. |
| Tax at payout | RIZIV (the national health and disability insurance institute) contribution 3,55%, solidarity contribution 0 - 2%, personal income tax 16,5% (+municipal tax)<br>Note: this applies if the payout occurs upon death or retirement. In addition to actually taking up the pension, the activity must be completely and permanently discontinued in the company (attraction principle). | Possibly a 10% rate instead of 16,5%, see here for a detailed overview of the taxation on the IPT payout. <br>For Branch 21 contracts we note once again that profit sharing is (largely) exempt from final taxation. |
| Legal protection | The provision remains subject to business risk (bankruptcy). | The beneficiary has a (preferential) claim against the insurer for the accumulated reserve (Branch 21) or inventory value (Branch 23) |
| Availability | The liquidity remains in the company and can serve there as working capital. The downside, however, is that the liquidity must also be available in the event of payout. | A premium is paid to the insurer, which thereby builds up a reserve for the benefit of the person concerned. The reserve built up by this premium or the projected final capital can be used to finance real estate (pledge + advance on policy + bullet loan). |
| Final capital | The provisioned amount is not always available at retirement age | The amount to be paid out is held safely with an insurance company |
| Taxation of the 80% rule | Salary cannot be reduced for the actual pension. After all, the 80% check takes place at payout. If the salary decreases, the provision will be too high and must partly be reversed as taxable profit. | The 80% check takes place when the premiums are paid. If the salary decreases afterward, there is no problem at all. The payments are adjusted to the new situation. |