IPT / EIP: “Individuele Pensioen Toezegging” / “Engagement Individuel de Pension” – Belgium
What?
- A pension saving formula according to belgian law
- “Individuele Pensioen Toezegging” / “EIP: Engagement Individuel de Pension”
- Your employer (or your company if you are self-employed) puts money into your personal savings fund instead of paying it directly to you.
Rules of the game
- The employer can deduct the IPT expenses as expenses from the company
- You have to pay 4.4 % taxes immediatly
- You will also pay 10 % taxes when you receive the money at retirement age.
- Addionally, you pay 3.55 % RIZIV and 2 % solidarity premium the moment you receive the full amount of the savings.
- There is a limit on the amount which can be contributed each year: the infamous ’80 % rule’.
- If you missed contributions in previous years, you can add contributions later on. This is called a ‘backservice’. The total amount however is also limited by the same ’80 % rule’.
- You can choose betwen a ‘TAK21’ (savings account – low interest – guaranteed interest / guaranteed losses) or in a TAK23 account (mutual fund type)
- You can add a life insurance / income guarantee insurance
All this can be found all over the interwebs so I won’t repeat it here. What you will not find is the answer to:
Is saving in an IPT a wise thing to do or could you better pay the taxes and invest it yourself?
I’m comparing these three cases:
- Case 1A: I invest this year (age 52) in an IPT and use a TAK21 – interest paying account
- Case 1B I save in a TAK23 – mutual fund – stock market (‘agressive’) IPT
- Case 2: I ignore the IPT, pay taxes today, and invest the left-over profits in a simple index fund
The fund offered by you: investment profile
The your bank / insurance provider who eagerly wants to offer you an account to collect more of your savings money will have to investigate your ‘investment profile’. Following that investigation, THEY will tell you what investment is suitable for you. Because YOU are considered too dumb to known that about yourself. For instance, if you are 50, you are supposed to take less risk because your time horizon is shorter, hence you will get a TAK21 money market savings account. Never mind that you receive much less than the inflation and thus actually lose your retirement savings on that account.
The 80 % rule
The limits are determined by something which is called the ’80 % rule’ which is really a grotesque scam. In theory, it means that your contributions should not exceed an amount that would make have you a pension larger than 80 % of your last salary. In reality, even with the maximum ’80 %’ contributions, you will never have a pension even close to 80 % of your working income, and after the statistical average life age (79) you are supposed to drop death or continue in poverty because you won’t receive anything (from this ’80 %’ fund) any more. And remember, you are not allowed to contribute more even if you wanted.
Case 1A: Calculation of saving in an IPT (as a self-employed) “safe” TAK21 interest savings account
| Age | Contribution or interests | Tax | Commission | Fund saldo |
|---|---|---|---|---|
| 52 | 3600 | 152 | 103 | 3345 |
| 53-64 | 492 | 3837 | ||
| 65 | 626 | 3211 |
Isn’t that remarkable? I have put 3600 € in my savings fund, and after 13 years of interests I receive less than what I have put in. Now this is not even accounting for the inflation!! In reality I will have lost more than half of my savings (in purchase power).
Case 1B: save in an ‘agressive’ TAK23 (i.e. stock market) IPT fund
We have to take a bet here on the future retuns, but average retuns in the past were often approx 7 % annually.
| Age | Contribution | Taxes | Commission | Fund Saldo |
|---|---|---|---|---|
| 52 | 3600 | 152 | 103 | 3345 |
| 53-64 | 7533 | |||
| 65 | 1229 | 6831 |
You end up with a lot more; but bear in mind that due to inflation, your real return is half of this.
Case 2: ignore the IPT – pay out the dividend (on the same 3600) and invest in an index fund
| Age | Contribution | Fund Saldo |
|---|---|---|
| 52 | 2006 | 2006 |
| 65 | 5933 |
The amount to invest here is the net dividend after all taxes, which means:
- start with 3600
- deduct 20.4 % company profit taxes
- deduct 30 % RV (roerende voorheffing – taxes on savings / capital income)
At the end you receive still a lot more than the IPT – case 1 A, but a bit less than IPT – case 1 B. The actual returns of case 1B and 2 of course will depend on performance of the market and the TAK23 fund.
Conclusion
- An IPT with a TAK21 ‘guaranteed interests’ is a stupid thing which melts away your savings.
- AN IPT with a TAK23 – agressive is approx as good as paying the taxes and investing in an index fund. Both cases don’t even offer full protection against inflation but hey, you have to pay the taxes anyway.
- Assuption is the self-employed with his own company. The calculation is different if you are an employee and your employer saves in an IPT for you.
Hey,
thanks for the blog and all the calculations. So would you say there is an age of a turning point – ie when it becomes more advantageous to invest in IPT than in index funds?
If your employer offers to put money in, it seems obvious to accept that. Most of the time the employer either offers it as an extra benefit, in which case it is ‘free money’, or offers it in exchange for a salary contribution, in which case the salary would be taxed at such a high margin that the IPT is better.
If you are self-employed, there is indeed an advantage to do the ‘index fund’ at a younger age, and the ‘IPT’ at an older age. As you can see from my example at age 52, there is already a slight advantage for the IPT, so without redoing the math I would assume the turning point to be just below 50. Below 50, the index fund does better; above 50, take the tax advantage of the IPT.
Really great analysis.
It seems to me none of the options (pensionsparen, IPT, VAPZ) make much sense for young folks (<50). Index funds for the win.
Just out of curiosity: couldn't someone switching from employee to self-employed in their 50s start going for an agressive IPT backservice for their entire past working career? Assuming there are no caps on how much can be contributed this way, or how far back in time.
Yes you could start a backservice in your 50’s. One caveat: if any of your former employers has already contributed to any group insurance, that will be added to the max amount that is checked in the 80% rule. So maybe there is less backservice to fill than you may think.
Seems like this might be a loophole. Backfilling, close to retirement, for reduced taxes.
.. now if only they won’t change the tax system the next 20 years, and I’m ready to strike!
I really liked your posts, it’s a nightmare to navigate the Belgian tax system. Really appreciated!
Hi,
Thanks for the blog!
What is your opinion about one more option:
– ignore the IPT
– pay the SME liquidation reserve tax of 10%
– invest the corporate reserves in an index fund for 5 years
– 5 years later, pay out the corporate reserves as a dividend (5% tax) or liquidation (0%)
– invest in an index fund
This option is possible for SMEs only.
That option would make a lot of sense, but there is one serious disadvantage: profits in the company are taxed. Capital gains are simply considered as profits and are taxed at 25% (or 20% under given conditions). There are a few exemptions, such as DBI-exemption for a large participation, but these are not applicable for an index fund. That’s why the ‘take the profits out and invest as an private investor = no capital gains’ is almost always the preferred way.
First of all : great blog, nice content !
You could invest the money that needs to get ‘parked’ for 5 years in DBI funds that are now available from a range of different banks. That said, since these DBI funds have not been around for long, comparing track records is hard + entry cost 1-3%, …. probably eat away good chunk of the profit. It also looks quite difficult to find out the exact composition of these DBI funds allowing proper risk / award analysis since you’re on a 5 yr horizon with this money.
Hi, can you make an update for IPT with the new “circulaire wetgeving”. Will it totally flip to just withdrawing it, paying the taxes and investing it privately?
Hi Jos, You probably mean the circulaire of 31 March 2022. It changes the 80 % rule. The impact is on the maximum amount of deductible contributions to the IPT you are allowed to make. I don’t see how it would impact the return itself, so the calculations of this blog would remain the same. You just cannot contribute as much as before.