The swan song of long-term savings?

Earlier this year there was quite a stir about the plans of Minister Van Peteghem to abolish tax saving via Long-Term Savings from 01/01/2024. That plan was however suspended in the summer, and it seemed that Long-Term Savings could still definitely be taken out until at least 2025.

Calculations by the monitoring committee now show, however, that the budget deficit is 2 billion higher than previously estimated. So there is now an urgent need to find money. It is therefore suddenly very realistic again that new Long-Term Savings contracts will no longer be able to be taken out from 01/01/2024.

Only already existing contracts would then still be able to continue benefiting from a 30% tax advantage, and this until their current end date.

As your professional advisor, we therefore recommend that you:

• Either take out a new Long-Term Savings policy now if you do not yet have such a policy,

• Or extend your Long-Term Savings policy to an end age of 99

Both actions allow you to benefit from the maximum tax advantage.

The tax reality of your pension: how can you take action today?

Many people cherish the dream of retiring, still fully enjoying life, and paying as little tax as possible. But this is often a misconception: many retirees, after all, continue to pay taxes even after they retire. This article clarifies some of these tax aspects and examines how you can anticipate this today.

Taxes after retirement: a fact

It is important to know that pensions are indeed taxed less than earned income, but this does not always mean they are fully exempt from tax. On your pension income, you benefit, compared to your earned income, from an additional tax reduction of up to €2.346 per year, which means you pay no tax if your pension is lower than approximately €1.400 per month.

However, if your gross pension income is higher than €1.400 per month, you must prepare to pay taxes even after your retirement. Finally, social security contributions or solidarity contributions may also be due on higher pensions.

Reducing the tax burden after retirement: the possibilities

For a complete overview of all the possibilities, we refer you to the website of the Federal Government. However, the most commonly used ways to save on taxes are long-term savings and donations.

What is Long-Term Savings?

Long-Term Savings is an attractive tax saving formula for every natural person who still has budgetary room on top of Pension Savings.

Through Long-Term Savings, you set aside an amount each year until retirement, or at least ten years after taking out the policy.

How much you may save depends on your net taxable earned income, with an absolute maximum premium of € 2.350 per year. The premium paid gives you a tax advantage of 30% (more on this below). You can invest the savings premium in both branch 21 (with capital guarantee and guaranteed return) and branch 23 (the investment insurance in funds, without guarantee).

Why is Long-Term Savings already important for me now, even though I am still far from retirement?

Without the measure that is now on its way, you could indeed still have delayed a bit, if the extra savings expense comes financially a little too soon.

But anyone who does not start Long-Term Savings in 2023, and this can even be with a limited savings premium, which of course cannot be increased afterwards, will probably no longer be able to take out a new policy from 2024.

You can still take this out now even for your children who are still studying (18+). Those children currently have no advantage at all, but they will once they start working in a few years. And that for the rest of their lives. If you did take out Long-Term Savings in or before 2023, you will have the policy and the associated tax advantage until the end date of your contract.

Why is Long-Term Savings still attractive for the period after my retirement?

Too often people think that no taxes need to be paid after retirement anyway, and that therefore no tax advantage is possible. Not correct, in other words. With a pension of more than € 1 400 per month, you are already paying taxes. And if you can reduce that, that is a welcome bonus.

That is why we take out policies with a term until the 99th birthday, so that you yourself can determine when you stop this.

If, for whatever reason, you no longer have a tax advantage after retirement, or you wish to withdraw the saved funds, you can quickly have the policy paid out and still draw a nice savings capital. Without exit costs, of course.

If you do have the tax advantage, like most people, you can keep Long-Term Savings for as long as you wish, up to a maximum of your 99th birthday.

What if I already have a Long-Term Savings contract?

If you already have a contract and are not yet 65, we recommend checking what the end date is. Because most existing contracts have an end date at the age of 60 or 65.

Extending the existing contract will, according to Minister Van Peteghem's proposal, also no longer be possible from 2024.

As a result, without action today, you will probably also no longer have the option of deducting premiums for tax purposes after your 65th birthday, which would be a shame. Especially if you pay taxes every year.

You should therefore contact us as soon as possible if you are interested in extending your tax advantage to age 99.

What is the taxation of Long-Term Savings?

On every premium paid in year X, you receive a 30% tax advantage in year X+1, through your taxes. And that even after your retirement!

There are, however, 4 conditions attached to this:

1. The contract has a term of at least 10 years and runs at least until age 65 2. You are at least 18 years old and the contract is taken out before you turn 65 (but you can keep saving after age 65) 3. You fall under Belgian personal income tax, meaning you have earned income, a pension, or replacement income. 4. You are the beneficiary in the event of survival of the contract, and the beneficiary in the event of death is your spouse, the legally cohabiting partner, or a blood relative up to the second degree

On your premium you pay 2% insurance tax, and on your accumulated capital at age 60, 10% tax is withheld at that time. If you only start Long-Term Savings after age 55, the tax is withheld on the 10th anniversary of your policy.

All premiums you pay after the tax withholding (so in most cases after the 60th birthday) therefore usually DO give a tax advantage, but are NOT taxed anymore. An extra advantage, in other words.

The payments for your Long-Term Savings can, however, conflict with the deduction of your home loan.

In Flanders, a loan for a property for private use that was taken out after 2015 has no impact on the amount you can deduct through Long-Term Savings.

In other cases, you must (partly) deduct the amounts paid for the mortgage loan from the possible annual amount for Long-Term Savings.

In Brussels, loans taken out from 2017 for the sole own home no longer have any impact on the possible annual amount of Long-Term Savings.

In Wallonia, you can combine payments under Long-Term Savings with the benefits of the housing cheque (sole own home, financed with a loan taken out from 2016).

But even if, for the next few years, you do not yet enjoy the maximum benefit, or even no benefit at all, from Long-Term Savings, it can still be worthwhile to start anyway, to be sure of the tax advantage after the loan has been paid off.

Contact us now for advice

Do not hesitate to contact us to find out whether long-term savings is worthwhile for you. It is never too early to plan your financial future, and we are ready to help you.

Read more about long-term savings on our product page.

Last update: 28/09/2023