It has been in the offing for some time: the end of the life-course savings plan. Since 2012, to be precise. On November 1, 2021, the time has come to release the balances of the plan. It will be a fictitious ‘moment when paid’, and the remaining balance is taxable. But before then, employees may still put their balance to use. What things do you have to bear in mind?
What were the ins and outs of the life-course savings plan again? At first, the plan was intended to extend a helping hand to employees during the ‘rush hour’ of their lives. They could save up a balance in the life-course savings plan via their employers, 12% of the annual wages each year. With this balance, they could bear the costs of a period of unpaid leave. For example, they could take unpaid leave when the children are still small.
An evaluation, however, showed that the plan was mostly used for an early retirement. The government at the time, on the other hand, was busy encouraging later retirements. That is why the life-course savings plan was abolished at the end of 2011. But a transitional arrangement was put in place. Employees whose balance in the life-course savings plan exceeded € 3,000 at the end of 2011, were allowed to hold on to their nest-egg. And to continue to add a maximum of 12% of their annual wages to it each year.
But after ten years of transitional arrangement, the nest-eggs will have to be hatched this year. The government really does not see any point in an extension (see box on the next page). It had been decided before that the fictitious ‘moment when paid’ would be set at November 1, 2021. Therefore, on that date all remaining balances in the life-course savings plans will be released. And that is quite a sum of money. The Dutch Banking Association NVB, the umbrella organization of banks, estimated the outstanding balances in banks at € 1.5 to € 2 billion, divided among 36,000 to 45,000 customers.
After November 1, the administrators of the plan will have to settle the balances. They have been assigned with the obligation to withhold, and therefore they will withhold income tax on the balance, which they will then pay to the tax authorities. The remaining balance will be credited to the saver’s accounts. This amount can be disposed of freely, but for the employee it is part of his income in box 1 of the income tax IB. This means that employees could then be subject to the high IB rate of 49.5%. But the consequences may yet be mitigated by the averaging scheme.
There are a few options to avoid paying over the balance of the life-course savings plan. For example, within the legal limits, the balance may be converted into a pension right. But these schemes are not necessarily very beneficial and they certainly are quite complicated. Of course, the balance may still be withdrawn before the fictitious ‘moment when paid’. When an employee asks for the life-course savings plan, as an employer you are obliged to offer him one. You will have to lay down the plan in writing, stating at least:
- the institution where the employee saves for the plan;
- a provision that the employee states in writing whether you have to take account of a balance in the life-course savings plan accrued with a former employer.
The plan also includes a life-course leave tax credit. The employee is entitled to this credit if you apply the income tax and social insurance contributions credit for him. When he withdraws the balance in the life-course savings plan through his employer, the employee can receive an amount of € 223 (amount in 2021) in life-course leave tax credit for each unused calendar year up to and including 2011. This credit will be included in the payroll tax form under the heading ‘applied amount of life-course leave tax credit’. When the balance in the life-course savings plan will be released on November 1, the savings institution will not apply the life-course leave tax credit. For the payroll tax form, this means that in any case in this year’s last two monthly or four-weekly forms € 0 will have to be filled in under the heading life-course leave tax credit. The same goes for the heading ‘saved balance of life-course savings plan’. After all, life-course saving is no longer possible in the last two months of this year.
Ten-year transitional arrangement is ‘generous’
The government is not very likely to show any signs of extending the transitional arrangement for the life-course savings plan. In response to Parliamentary questions, State Secretary Vijlbrief of Finance emphasized earlier that participants have had ten years to act upon the forthcoming abolition of the plan. The corona situation makes no difference, according to Mr Vijlbrief. The State Secretary stresses that at the time a generous period of transition was opted for, taking the existing rights into account as much as possible.