Bank savings can be a very favorable way to get the most benefit from your severance payment or golden handshake. Here is a simple description of how it works.
Bank savings – isn’t that very complicated?
If you are dismissed after a long period of employment and have been promised severance pay or a golden handshake, the question arises: How can I benefit most from it? You may be inclined to just have it paid out as wages. You then immediately pay wage tax and national insurance premiums on it and you are then free to put or use this net amount in a savings account or deposit. However, it may be worthwhile to postpone the payout for a while and explore the options first. A fairly new option that should not be overlooked is bank savings. Since January 1, 2010, it has been possible to deposit an amount in a so-called bank savings product. It may sound complicated, but it is actually not that bad and the banks employ advisors who can list your financial situation so that you can decide whether it is something for you. Here are the most important points.
How does Bank Savings work?
The ex-employer deposits the gross amount into a blocked bank account. This amount does not have to be the entire amount of the severance payment, as long as it is at least 10,000 euros. The bank credits the (gross!) amount on the blocked account with interest. This interest rate may change over the years, because it is officially a variable interest rate, but the current percentage is somewhat higher than the interest on the average standard savings account. If you want to supplement your income at some point, you can have a so-called living annuity paid out. This can be for part or the entire amount. The living annuity is a monthly payment for a period of a number of years. The minimum number of years you must take into account depends on your age (see table below). For example, if you are 48, you are obliged to pay it out over at least four years. More than four years is also allowed. It is also possible to purchase an annuity, but you must pay close attention because an annuity is an insurance product to which very different conditions apply and which incur costs. A living annuity is a bank savings product with the associated conditions and without costs. If there is a remainder left in the bank savings product after the living annuity has been paid out, you will also receive interest on it until you decide to have a living annuity paid out again.
At an age
Distribution of benefits
Under 25 years old
Between 25 and 30 years
Between 30 and 35 years
Between 35 and 40 years
Between 40 and 45 years
Between 45 and 50 years
Between 50 and 55 years
Between 55 and 60 years
From 60 years
To supplement your pension or have it paid out earlier?
If you leave the money in the bank savings product, you can have it paid out as living annuity no later than the year in which you turn 65. The minimum period is 1 year (see Table), but you can also spread it over a longer period.
Where can I go for a bank savings product?
There are at least three banks that offer bank savings products. ABN-AMRO Bank has the Golden Handshake accumulation account, RABO Bank the Golden Handshake Savings and SNS Reaal has the Golden Handshake Account and the Golden Handshake Income, with which SNS Bank offers both a variable interest rate and a fixed interest rate type. ABN-AMRO Bank and RABO Bank also expect to soon be able to offer a fixed-interest variant. Due to any differences, it is important to read the General Terms and Conditions of the bank savings product carefully before you decide. These can be found on the websites of the relevant banks. An advisor from the bank can also help you with this.
The tax benefits of a bank savings product are twofold.
- If you pay wealth tax (box 3) on your income tax return, this amount will be deferred. As long as it is in the blocked bank savings account, no wealth tax has to be paid on it.
- The payment of payroll tax and personal income tax is postponed. If you have the severance payment paid directly as wages by the employer, the employer must levy payroll tax and PPV on the entire amount. This can be unfavorable if part of your income falls into a higher tax bracket. Sometimes this only becomes apparent on your income tax return. By spreading the benefit, the part that falls in a higher rate bracket becomes lower or nil (Note: this depends on your other income).
If you only start receiving benefits after age 65, your entire income will be subject to a lower tax rate.
And what if I want to do something else with my money later?
It is possible to transfer the amount to another bank or insurance company and possibly to another product, but this will entail costs. The current costs are 150 euros. Read the terms and conditions of the bank in question.
If I die, what will my surviving relatives receive?
If the beneficiary dies, the payment in periodic installments must be started immediately by his/her spouse/registered partner and children under the age of 30. If the heirs do not fall into this category, they will receive the amount in one go. In both cases, payroll tax and personal income tax are immediately withheld upon payment.
There are a few things you should pay close attention to.
- The money may not yet have been in your own account. It must be transferred directly or via a notary office from the employer’s bank account to the bank savings product.
- The employer may not provide the compensation as a (disguised) early retirement scheme. It may be compensation for lost income or pension accrual, but… if it is compensation to enable the ex-employee to retire early, the money may not be deposited into a bank savings product.
The advantages and disadvantages at a glance
- flexibility: it can be a supplement to the pension and, if necessary, also an earlier supplement to the income
- tax benefits in terms of wealth tax and income tax
- the interest is calculated on the gross amount
- favorable interest rate
- there are no costs involved (unless you decide to transfer the amount prematurely to another product)
- Once the money has been deposited in the bank savings product, it can only be withdrawn over a minimum number of years (see table)
- the interest rate is variable (just like with a regular savings account) and therefore depends on the market and what the bank, as a result, offers
Bank savings is not something that is suitable for everyone, but it is a very good choice for many people who are going to receive a severance package or golden handshake. However, it is always advisable to discuss your personal financial situation, wishes and options with a financial advisor.