IPS (Individual Pension Scheme)
- Guaranteed return from the ‘class 21’ component with potential to earn additional return from the ‘class 23’ component
- Tax efficient
- Financial protection for your loved ones
Reasons for setting up an individual pension scheme (IPS)
Being self-employed, you’re probably too busy every day running your business to think about your personal financial future. An IPS enables your firm to fund a supplementary pension for you, as its manager or director, in a tax-efficient way. In this case, the contributions you pay can be deducted as business expenses by your company. The KBC Keyman Pension Plan:
- lets you build up a supplementary pension in a tax-efficient way
- provides a replacement income if you become ill or have an accident
- provides death cover
If you don’t have any scope in terms of tax relief to build up a pension, you can also set up an IPS to provide financial protection to your loved ones should you die or become incapacitated for work.
KBC Keyman Pension Plan
|Legal form||Guaranteed-rate life insurance (class 21)
May be combined with unit-linked life insurance (class 23)
|Term||The insurance ends when the insured person reaches statutory retirement age or upon their death, whichever is sooner|
|Return on ‘class 21’ component||Guaranteed interest (1.70%) plus any profit share|
|Costs and charges||See product fact sheet|
|Tax treatment||See product fact sheet|
Only for self-employed company managers
This policy is designed specifically for company managers. It is subject to the requirement that you receive a regular, monthly salary (director's salary) from the business. Therefore, business managers who are not salaried (or only receive dividends) cannot build up supplementary pension capital through the company. If you’re not a self-employed company manager, you can build up a pension through a VSPSS (Voluntary Supplementary Pension Scheme for the Self-employed) or a PAS (Pension Agreement for the Self-employed).
Learn more about an Individual Pension Scheme
When you’re self-employed and reach the end of your active career, the chances are that your state pension will not be enough to maintain your existing standard of living. Many self-employed people understandably find that a problem. However, you can counteract this situation by joining an IPS to help you increase your purchasing power during your retirement years. Even if you end up selling your company or if things go wrong due to bankruptcy or illness, you can be sure of receiving the pension benefits you’ve accrued under the IPS, because the reserve you’ve built up is yours no matter what.
You choose the balance between the ‘class 21’ component and ‘class 23’ component of your IPS. Deposits in the ‘class 21’ component earn a guaranteed return until the end of your contract, whereas deposits in the ‘class 23’ component entail a potential risk because the return is linked to investment funds. On the other hand, you could potentially receive a more attractive return.
Under an IPS, the contributions for the manager's supplementary pension can be deducted as business expenses by your company, provided that conditions such as the 80% rule are met.
What determines the 80% rule?
In simple terms, this rule holds that the pension contributions for supplementary pensions are only tax-deductible if the total of your state and supplementary pensions (expressed as an annual annuity) does not exceed 80% of your last normal gross annual salary (taking into account the normal progression of a career).
These contributions do not, however, count as a taxable benefit in kind when you’re a self-employed person running your own business. Only the capital that you receive further down the line will be subject to one-off taxation at an advantageous rate. This makes an IPS considerably cheaper in terms of tax than a pay rise or benefit in kind.
Like to make even more tax savings come the end of the financial year?
If so, why not consider making a service buyback deposit, such as in your individual pension scheme? Because, since 2018, your claim for tax relief on prepaid expenses must be spread over the full period relating to the expenses.
So, if you conclude a three-year renting contract to finance a car, you could, until 2018, have asked for a higher bill and fully deducted those rental expenses at the close of the financial year. Since then, you have to spread that expense evenly over the term of the renting contract.
The rule also applies to insurance, service contracts and road tax. However, it does not apply to service buybacks, like your individual pension scheme, because they concern the past.
That means you can play catch-up on past years of service if, at that time, you paid in less than the maximum that would have been allowed under the 80% rule. You can do it in one fell swoop or spread the catch-up payments over a number of years.
You can also claim full deduction of the contributions from your taxable profit for that financial year. On top of that, you can of course also pay in your IPS contributions for the financial year then ending.
Tip: as a small company you can benefit from the lower rate of corporation tax and at the same time create extra space for your IPS. That way, you pay 20% corporation tax on your first 100 000 euros of profit. One condition, however, is that you pay yourself an annual salary of at least 45 000 euros. Your higher salary therefore allows you to pay more into your individual pension scheme.
Your loved ones mean the world to you. It’s only natural, therefore, to protect them should you die prematurely. With an IPS, the pension reserve you’ve accumulated remains vested and will be paid outto the beneficiaries you designate. Depending on your family situation, you can also opt, for instance, to take out supplementary death cover.
Tip: if the limit imposed by the 80% rule means you don’t have any scope in terms of tax relief to build up a supplementary pension or if your business currently lacks the financial resources to fund one, the KBC Keyman Pension Plan ensures your next of kin are not left empty-handed due to the fact that you can also take out death cover as your main cover.
Combine an Individual Pension Scheme (IPS) with a VSPSS or social VSPSS for a maximum supplementary pension. Paying into a Voluntary Supplementary Pension Scheme for the Self-Employed offers greater benefits than paying into an IPS, but the contribution must not exceed a certain threshold of the net taxable income.
We therefore recommend that you first get the maximum tax benefit from your standard or social VSPSS, and subsequently supplement it with the tax benefit from an IPS.
If a self-employed person is unable to work due to illness or accident, loss of income often results. To avoid problems, you can provide yourself with a replacement income through our supplementary Guaranteed Income cover, the premium for which is also tax-deductible. The ‘Premium Waiver’ option, meanwhile, offers you the certainty that your pension capital will continue to be built up, even during periods of work disability.
Additional benefits of an IPS
- If you’re planning to buy (or renovate) a property for personal use, you can take an advance before retirement on the pension capital built up. In many cases, this is more straightforward and cheaper (no notary’s fees) than a conventional (mortgage) loan. Contact your intermediary for advice that’s tailored to your situation.
- If you’re looking for an alternative to traditional loan balance insurance, the KBC Keyman Comfort Plan also allows you to reduce your IPS’s supplementary death cover over time. You can adjust your death cover in line with the repayment of your home loan, for instance. Your business finances the costs of your death cover, while you fully maximise the personal tax breaks available for principal repayments and interest payments.
Information about sustainability
This product promotes environmental and social characteristics that allow contributing to a positive impact on the environment or society, but does not have a sustainable investment as an objective. Moreover, we strive to limit any negative impact on the environment or society based on a responsible investment policy. More information can be found in your info sheet.
This product was awarded the ‘Towards Sustainability’ label for a period of one year. The label, which was developed by Febelfin (the Belgian banking federation), is re-evaluated every year. It is a quality standard under the supervision of the Central Labelling Agency of the Belgian SRI Label (CLA). The standard defines several minimum requirements that sustainable financial products must meet at product level and in the investment process. See www.towardssustainability.be/en/quality-standard for more details. Products that are awarded this label may not meet your own sustainability objectives and the label itself may not necessarily meet the requirements of future national or European regulations. Learn more at www.fsma.be/en/sustainable-finance.
If you’re interested in an IPS or would like to know how to combine it with a standard or social VSPSS or any other supplementary pension savings scheme, just leave your contact details and we’ll get back to you as soon as possible for a no-obligation appointment.