Payout of an IPT upon statutory retirement

This article concerns the IPT (an individual pension commitment funded by your company) for self-employed directors.

Below you can read about the taxation of the payout. For more on how the IPT payout takes place upon retirement, read on here.

Tax on payout of the IPT.

The capital of your IPT is, after deduction of the solidarity contribution and special social security contributions (together max. 5,55%), taxed at a rate that depends on your age at the time of payout.

Please note:

• in practice, the above tax rate results in a payroll withholding tax that is slightly higher. For example, the pension institution applies a withholding of 10,09% for the 10% tax. The 16,5% likewise becomes a withholding tax of 16,66%. And so on. This is because any municipal taxes are taken into account.
• in Branch 21 contracts where the payout is split into a capital sum and a profit share, the profit share is not subject to the tax; only 5,55% (as mentioned above) is deducted.

Conditions for the 10% final taxation.

As indicated in the table above, you may be entitled to 10% final taxation if you meet a number of conditions:

1. You must have reached the statutory retirement age

The 10% rate is linked to the statutory retirement age. Specifically, you currently must work until age 65 to benefit from the favorable 10% taxation. Due to the postponement of the retirement age, this only applies from age 66 if you were born after 31.12.1959, but before 01.01.1964, and from age 67 if you were born after 31.12.1963.

2. Or you must have a full pension career.

You can also benefit from the 10% rate before the statutory retirement age if you have a full pension career of 45 years. If you are unsure whether you meet this career condition, even after consulting your MyPension file, you can request a career overview certificate from the FPD to check whether you have completed a full career for the application of the favorable 10% rate.

See below for a further definition of "full career".

3. And you must have remained active until that time

It is important that you also remained active until the time you meet the conditions under 1 or 2. It is sufficient that you were affiliated with a social insurance fund for the three years prior and that during that period you also paid your social security contributions as a primary occupation. You do not need to provide proof of any activity (oral parl. question no. 19530, Van Rompuy, 28.06.2017).

See below for a further definition of "effectively active"

For an example calculation, see here on this website.

What if your policy matures before you take your pension?

Since 01.01.2016 (Act of 18.12.2015, BS 24.12.2015), withdrawing your IPT is only possible from the moment you actually retire. A withdrawal before age 65 is therefore only still possible if you also actually take early retirement. If your IPT has, for example, a maturity age of 60, and you do not (obviously) take your pension at age 60, this policy will be mandatorily extended until your statutory retirement age, being 65, 66, or 67 years (see below). This policy will then indeed be paid out as explained below.

What if you take your pension before your policy matures?

It works in both directions. If you take your pension on a date before the end date of your policy, your policy must indeed be paid out. This is the case even if this policy still runs for several more years (and perhaps even under attractive insurance terms).

Exception to this rule. For persons born before 1962, a temporary transitional arrangement is provided. They can still withdraw their supplementary pension before actually retiring. The precise age at which this is possible can be read in the table below. For example, if you were born in 1961, you can still request an early payout at age 63, even if you do not have a right to early statutory retirement at that time.

Please note:

• in this case, your pension agreement must also provide for a withdrawal before you retire, or before the planned maturity date.
• the favorable early withdrawal measures are absolutely void for members born on or after 1 January 1962

What if you keep working after your statutory retirement age, without taking your pension?

As long as your policy runs, you may postpone the withdrawal if you keep working after the statutory retirement age without taking your pension.

How is your supplementary pension taxed if you took an advance to finance real estate?

The taxation as explained above applies to the full capital amounts, but upon payout the insurer will deduct the amount of the advance already withdrawn from the capital to be settled. However, the portion of capital on which the advance was withdrawn and not yet repaid by the contract's maturity date will be taxed in a special way. The amount of the advance is converted into a notional annuity, capped at EUR 83.400 (2021 amount). This notional annuity may be reduced by 20% for a withdrawal from age 65, or with sufficient career years and if you have remained active until that time (see the detailed explanation above for the cumulative conditions). The portion of the advance that exceeds the above amount, or that does not relate to your sole and own home, is taxed in the same way as a paid out pension capital. The same tax regime applies to the other forms of real estate financing via the supplementary pension (loan reconstitution and pledging).

What should we understand by the notion of 'full career according to the applicable pension legislation'?

A 'full career according to the applicable pension legislation' currently means: a career of at least 45 years in which each year meets the condition to be taken into account for early retirement. What does this mean concretely?

• The sum of the years that count toward early retirement must be 45 years. For the self-employed, these are years in which the person worked at least two quarters. Each quarter counts as 78 days (312 days / 4).
• for employees and civil servants, these are years with employment of at least one third of a full time work schedule: 104 days (312 days / 3).

When a person was, for example, an employee for half a calendar year and self-employed for the other half, they meet the criteria under both schemes for that year to count toward the 45 year career condition. However, the intention is not to have one year count twice. A calendar year may only be taken into account once for the 45 year career condition! Regularized study years count toward the calculation of the statutory pension, but they do not count toward the assessment of a full 45 year career for the application of the 10% final taxation for IPT, or the application of the notional annuity on 80% of the capital for the final taxation for VAPZ (the free supplementary pension for the self-employed).

What should we understand by the notion of 'effectively active'?

For the application of the favorable final taxation (10% for IPT, notional annuity on 80% of the capital for VAPZ), it is not enough for the person to have a 'full career' of 45 years, they must also have remained 'effectively active' until reaching the full career.

For a self-employed person, it is assumed that he/she was effectively active if, in the 3 years preceding the attainment of the full career, he/she was continuously affiliated with a social insurance fund and during that period always paid all social security contributions due as a self-employed person in a primary occupation. Certain periods of inactivity can be treated as equivalent to periods of effective activity, during which the self-employed person fully ceased their activity due to incapacity for work and the incapacity for work was recognized by the advising physician of the health insurance fund with which the self-employed person is affiliated. The notion of 'effectively active' is therefore defined in exactly the same way as for the application of the favorable rate when remaining effectively active until the statutory retirement age.

In its clarifying circular 2023/C/83, the tax administration adds that exemption from or deferral of payment of social security contributions does not prevent the application of the favorable tax rate of 10 %. The beneficiary must, however, have remained active.

For the rules regarding "effectively active" in the case of an employee, read on here.

A new additional role for Sigedis.

In practice, beneficiaries did have to provide various certificates to prove to the paying pension institution that they had remained effectively active. Because Sigedis can consult social security data, during the course of 2024 Sigedis will automatically inform pension institutions whether an employee has remained effectively active. In this way, pension institutions will immediately be able to withhold the correct payroll withholding tax when drawing up settlement statements for, for example, the payout of group insurance upon retirement.