Pension Commitment for the Self-employed (PCS): the pros and cons
Since mid-2018, self-employed people without a company can sign a Pension Agreement for the Self-employed (PCS) in order to build up a supplementary pension. What does this consist of? And what are the advantages and disadvantages?
THE BACKGROUND
It is well known that it is in the best interest of every self-employed person to build up a supplementary pension. The average statutory pension of a self-employed person is significantly lower than that of an employed person.
Self-employed people working in companies can build up a supplementary pension through a Private Supplementary Pension for the Self-employed (PSPS) and an Individual Pension Agreement (IPA). A person who does not work for a company is not entitled to an IPA. For a long time, apart from traditional pension and long-term savings, a PSPS was the only option for them.
In addition, the maximum contribution for a PSPS is limited to 8.17% (traditional PSPS) or 9.40% (social PSPS) of the reference income, with absolute maximums of €3,256.87 (traditional PSPS) and €3,747.19 (social PSPS). As the government wishes to stimulate supplementary occupational pensions, an additional vehicle for self-employed people without a company was therefore needed, hence the reason for the creation of the PCS, which is intended exclusively for self-employed people without a company. Under certain conditions, people who are self-employed as a secondary profession and assisting spouses may also take out a PCS.
TAX ADVANTAGE
Payments towards a PCS will entitle you to a tax benefit of 30% (+ municipal tax). However, a tax of 4.4% will have to be paid on the insurance premium. The maximum amount which a self-employed person pays each year for a PCS is limited by the 80% rule. This is calculated on the basis of the average income over the past three years and therefore differs from the calculation method of the 80% rule for individual pension agreements (IPAs).
PAYMENT
The saved capital can be paid at the earliest when the self-employed person takes his or her legal pension or qualifies for a(n) (early) legal pension. The payment will be taxed at 10% (+ municipal taxes) and through a solidarity and disability contribution, which is also the case in the event of death.
BRANCH 23
A PSPS only invests in branch 21, with a guaranteed return for the client. Investing in branch 23, with a return which depends on the results of one or more underlying funds, is not possible with a PSPS. With a PCS, it is possible to invest in both branch 21 and branch 23. In these times of extremely low interest rates, this gives self-employed people the opportunity to expect a better return.
BACKSERVICE
As with an IPA, a backservice is possible for a PCS. This is a catch-up payment which makes use of a tax deduction opportunity not used in the past. It is possible to go back up to 10 years from the date when the PCS was taken out. However, this catch-up payment is limited to 1 January 2018, which means that the possibility of using a backservice will be rather limited for the first few years to come.
CONCLUSION
A PSPS offers a greater tax advantage than a PCS, but does not allow you to invest in branch 23 insurance. This is possible, however, in the case of a PCS. A PCS allows self-employed people without a company to further optimise their tax deductions (after using up their PSPS contributions). However, the 4.4% tax on bonuses weighs on the yield.
Find out here about supplementary pension solutions for the self-employed at NN.
