Tax deductible pension savings plans
Everybody knows they should do something for their pension, but more often than not we seem to think that our pension is still a long way away and that providing for it can wait another day. In this article I will explain you a bit more about pension savings plans. These plans not only help you prepare your financial future, but also allow for a nice tax reduction via the money you are saving.
The benefits of a pension savings plan
The pension savings plans allow you to compensate fully or partially (depending on the amount paid in) the gap between your last salary and the (lower) pension received. And they are tax beneficial during their savings accumulation phase: the tax deductible amount of the pension savings plan depends on your age; it starts at €1.500 per year for people below 40 years of age and ends at a €3.200 for those older than 55 years.
Different types of pension savings plans
These savings plans are contracted by an insurance company in connection with a bank where the saved money is invested. Most pension savings plans offer different possibilities on how the savings are invested. The classic option offers a conservative interest based approach; the dynamic product offers the possibility to invest partially into investment funds for expected higher returns. The allocation between cash, bonds and shares within the investment funds depends on your investment strategy and the legal framework: the older you become the smaller the percentage of securities in your pension scheme can be.
The pension savings plan in action
Arrived at maturity (usually at pension age) the pension savings plan will start paying out benefits. The payout is possible as a combination of the following two options: your can have the benefits of your pension savings plan paid out as a monthly payment which will run until death; or as a single one shot payment (the one shot payment can constitute maximum 50% of the contracted pension amount). And in case there are still funds in the scheme at the moment of death, the rest of the saved amount will be paid out to the beneficiaries stipulated in the contract (spouse, children, grandchildren…).
Tip: Given the uncertainties around the future of pensions in Europe, this savings product should be high on your priority list!
The latest luxembourgish pension reform modulates future pensions in a way that will either reduce pensions paid out or oblige the insured to work at least 3 years longer; wouldn’t it be nice not to have to make this choice?
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A share is a unit of ownership delivered by a capital company. In most cases, it is a commercial company with a limited liability. Holding one of several shares – in other words, being a shareholder – means that you own a part of the company’s capital but you are not held personally liable for the company’s debts.