VAPZ / PLCI (Vrij Aanvullend Pensioen Zelfstandigen / Pension Libre Complémentaire pour Indépendants)
A VAPZ (Vrij Aanvullend Pensioen Zelfstandigen) / PLCI (Pension Libre Complémentaire pour Indépendants) is a pension savings formula in Belgium for self-employed. This post is my whining on this popular savings vehicle.
The rules of the game
- Each year you are allowed to save max 8.17 % of your net taxable annual income, with a max of 3187,04 € (2018), into a special dedicated VAPZ account.
- The accounts to choose from are only ‘TAK 21’ accounts. These offer a fixed-interest, ‘no-risk’.
- You pay the money from your personal account. You can write the amount on your income taxes, this deducts the amount from your personal income and your personal income taxes are lowered by income + city taxes (‘opcentiemen’) depending what your highest tax bracket is. This tax benefit is the only reason why the VAPZ is considered a ‘must-have’: you shall not ignore a 50 % tax benefit!
- You do pay an entry fee (‘instapkost’) to the bank for this savings formula, in my case 3 %.
- Then you wait and get old. Each year you receive a so-called ‘guaranteed interest’ (2018: 0.45 %) and a profit sharing contribution (2018: 0.75 %). The sum of these (1.20 %) is a lot smaller than the actual inflation (2018: 2.78 %). So you are really losing money each year with this ‘no-risk’ saving formula. They would better call it a ‘guaranteed-loss’ savings plan.
- The ‘guaranteed interest’ guarantees the interest on current contributions; the next year it can be changed or lowered. So there is no guarantee at all for the next contribution.
- To make things worse, once you are old enough (in my case: 67 years!) to receive the savings and retire, 50 % of the VAPZ is taxed again! Each year of your retirement, during 10 years, 5% of the full savings amount ( 5 % x 10 years = 50 %) is added to your pension and taxed as income tax. It is added to the highest tax bracket, so basically you loose all tax benefits which you thought you gained in the beginning. The only difference being that your highest tax bracket of your pension will likely be lower than the highest tax bracket of your working income. My income max tax bracket is 45 %, while my retirement max tax bracket is 40 %.
- Addionally, you pay 3,55 % RIZIV and 2 % solidarity premium the moment you receive the full amount of the savings.The amazing thing is that you pay these contributions again on money that was originally your personal after-tax money !!
Let’s calculate the result
Let’s calculate the complete parcours of one single contribution today to my VAPZ. Today, december 2018, age 52, I take my personal after tax money, and save it in a VAPZ account. I will receive the net amount at age 67, and have to pay additional income taxes till age 77 (10 years).
Input
This is what happens with my 3000 € contribution from personal savings:
- My contribution from personal savings: 3000
- Lower RSZ (Social Security): 528
- Lower forfait on professional expenses (3 %): 74
- Lower net taxable amount: 3000 – 528 – 74 = 2398
- Lower income taxes (45 % bracket): 1079
- Lower city taxes (7,7 %): 83
- Total tax discount: 1079 + 83 = 1162
- Real out-of-pocket invested money = 3000 – 1162 = 1838
- Bank fee = 3 % on 3000 = 90
- Real input into VAPZ account = 3000 – 90 = 2910
Input round-up:
- My real invested personal money is 1838
- and the input to the VAPZ account is 2910
Then wait 15 years…
| Age | Added Interests | Saldo VAPZ |
|---|---|---|
| 52 | 0 | 2910 |
| 53 | 35 | 2945 |
| 54 | 35 | 2980 |
| 55 | 36 | 3016 |
| 56 | 36 | 3052 |
| 57 | 37 | 3089 |
| 58 | 37 | 3126 |
| 59 | 38 | 3163 |
| 60 | 38 | 3201 |
| 61 | 38 | 3240 |
| 62 | 39 | 3279 |
| 63 | 39 | 3318 |
| 64 | 40 | 3358 |
| 65 | 40 | 3398 |
| 66 | 41 | 3439 |
| 67 | 41 | 3480 |
Then receive your money…
- And pay 3.55 % RIZIV = 124
- Pay 2 % solidarity = 70
- And pay extra income taxes the next 10 years on 50 % of the total sum received. My tax bracket during retirement is 40 %, the total taxes are 50 % x 40 % x 3480 = 696. AND pay extra city taxes on thoses extra income taxes, 7,7 % on 696 = 54
The result
| Invested from personal after-tax money | Received benefits at 67 | |
|---|---|---|
| Total amount invested in VAPZ | 1838 | |
| Total amount received in tax benefits | 1162 | |
| Received in 2033 money (incl 10 years taxes to be paid) | 2537 | |
| Received in 2033 (inflation adjusted) | 1677 | |
| Saldo | 1838 | 1677 |
Return On Investment After Inflation
One important note: you need to take inflation into account; because a euro today is not the same as a euro in 15 years from now. Inflation today (december 2018) in Belgium is 2.78 %. In 15 years, life will be 51 % more expensive.
If you compare the savings return (ROI -Return On Investment) of your real purchase power, the end result is horrible:
- the 2537 at retirement is really 2537 / 1.51 = 1677 in today’s money.
- So your real after-inflation return is 1677 / 1838 = – 8,8 % .Yes, that’s MINUS 8 percent!!
- I basically LOSE money with my VAPZ savings plan! I put in 1838 € of today’s purchase power and get 1677 € back in pension-purchase power at age 67!!!
Social security (RSZ)
Another factor is the state pension (RSZ, social security) which I calculated separately because there are two sides in the equation: you ‘gain’ short-term because your RSZ payments are lowered when paying VAPZ. But you ‘lose’ also because due to lower contributions, you also lower your state pension.
The RSZ result
| GAIN: Avoided contributions | LOSS: lower state pension | |
|---|---|---|
| Contributions | -528 | |
| State pension | -40 per year | |
| Total state pension | -560 (14 years: age 67 till 81) | |
| Total difference | 32 disadvantage for VAPZ |
The state pension lowers with 40 per year, the big question then is how old you become. To estimate that fairly, I took the life expectancy for a 52 year old male in Belgium, which is 81 years, which means I will enjoy the state pension during 14 years.
The difference between contributing and receiving a higher pension or not contributing and recieving a lower pension is almost zero. Which makes sense because the state pension system is build on the premise that the average population dies at the average life expectancy age. You certainly do not ‘gain’ money in avoided RSZ contributions.
Final conclusion
The VAPZ comes down to this: put your after-tax money in a coffin and bury it under the ground, dig it up at age 67, and have less money (in purchase power).
IF you effectively save what is left from your income at the end of the year, then it is preferable to pay the income taxes and put the money to work in an efficient way instead of these pension-formulas.
All these so-called “must-have” / “must-do” “very tax advantageous” constructs like “VAPZ”, “pensioensparen”, “IPT” are complex to start with, they involve new additional taxes and lock up your money at a very low rate of return. You can’t even touch it before you’re at the governments prescribed age of 67.
Collective madness
The more you think about it, the crazier it looks: VAPZ requires you to take your net saved money, on which you have already paid a horrible income tax rate (22 % RSZ, then up to 50 % income taxes + 7.7 % city taxes). You are then asked to lock-up that hard-earned money until age 67. At 67, you are taxed again (5.5 %) and the next 10 years you are taxed again on that same net-after-tax money!
Many participate in the VAPZ because of the carrot of the tax benefit before your money gets locked up. Meanwhile, they ignore the:
- decades of repetitive value loss of that money because of interest payments lower than inflation. Just that factor on itself erases the tax benefit
- 5.5 % tax (RIZIV / solidarity) payment
- 10 years of additional income taxes afterwards
Personal conclusion
This case is so obvious and clear. I will stop paying to the VAPZ and invest all savings wisely in other ways. I don’t need the – 8 % Return On Investment, thanks.
Other Belgian Pension Savings Formulas
IPT: “Individuele Pensioen Toezegging” / “EIP: Engagement Individuel de Pension”