Released annuity and the Tax Authorities

With the balance method, you can prevent the tax authorities from levying unnecessary taxes on your extra income from the premium-free annuity, your annuity insurance, policy or single premium policy. You have saved and paid premiums for this for a long time. That is why it is worthwhile to keep as much of your annuity as possible net after tax, even if the policy is surrendered. How much tax you have to pay to the tax authorities on the released annuity depends largely on how you have the released annuity paid out. How much you will receive also depends on the bank or insurer’s calculation. How do you get more return from your released annuity? Do you have an old regime or a new regime annuity policy?

Answers about annuities

  • Buying a single premium policy or annuity insurance
  • Building up an annuity
  • Annuity old regime
  • Temporary annuity payment as a bridge
  • Temporary retirement annuity
  • Lifelong retirement annuity
  • The balance method of the Tax Authorities
  • Key lock

Buying a single premium policy or annuity insurance

A single premium policy or annuity policy is ideally suited as a supplementary income. You can take out a policy for many reasons. The soon-to-be released annuity will give you an attractive additional income if:

  • You have a pension gap.
  • You would like to stop working sooner.
  • You want an extra income as a supplementary pension or just to do all kinds of fun things where extra income is extremely useful.
  • You want to save with a tax advantage.

Building up an annuity

A single premium or single premium policy is a so-called capital insurance policy. You make a one-off or periodic deposit. It is saving with a tax advantage if you have a demonstrable pension deficit. In the accumulation phase of your annuity, you pay premiums monthly, annually or in a lump sum to obtain a high released annuity as additional income. You can influence the amount you receive and the net amount you receive in several ways. So get the optimal return from your annuity:

1. Annuity accumulation phase

You can deduct the premiums at a high tax rate during the accumulation phase and will probably pay tax on the annuity later at a lower rate. If that succeeds, there will be a profit, but whether it will succeed is completely uncertain. You may not have a lower income later than you do now, so there is little benefit at this point if you cannot postpone the payment of the annuity for a number of years.

2. Guaranteed final capital or not

One policy offers you a guaranteed final capital, the other policy is based on investments. With a guaranteed final capital you are certain, but of course not with investments. The policy is usually accompanied by insurance. So pay attention to what extra guarantee this insurance offers you.

3. The costs of an annuity policy

The costs charged for an annuity policy are not always transparent. It is therefore up to you to request sufficient quotes and compare the offers carefully. So ask further about the costs that will be charged. Request multiple offers from insurers and banks.

4. Pay out the released annuity without premium

When the annuity or single premium policy has reached its end date, a certain capital has been saved, but this must still be converted into an annuity. You should also go shopping here. One provider charges a much lower interest rate to pay out the released annuity than the other. One has much higher costs than the other. You will only get the highest return from the released annuity if you carefully compare sufficient quotes and select the one with the highest return. You certainly do not have to stay with the institution where you have built up the capital all these years. But be careful: let the old insurer transfer the payment directly to the new institution and not to your account, otherwise the tax authorities will immediately be there to levy taxes. A relative newcomer in this industry is Brand New Day.

5. Redemption of an annuity also costs revisionary interest

If you have your annuity surrendered and the redemption amount is more than 4,000 euros, your insurer will withhold no less than 52% payroll tax and you must pay the tax authorities 20 percent revisionary interest on the total redemption amount. In total, this could mean a deduction of 72% of the current value of your annuity insurance policy. Huge amounts. So do not redeem it if it is not necessary, but use the released annuity wisely. First read more about the revised interest, conditions and amount of the interest before you decide to buy it out and have to pay a lot of money to the tax authorities.

6. How long will the annuity be paid out?

The number of years that you have the annuity paid out depends on the policy and is subject to various conditions. This may also apply to the effective date of the policy. If you can freely choose the start date, it may be very wise to postpone the annuity payment until a time when the interest rate is slightly higher. You then continue to save for a higher capital and wait for the right moment.

7. Convert annuity insurance to bank savings

If you have the value of your annuity insurance transferred directly to bank savings at a bank, no tax will be withheld at your request. However, the money may not be deposited into your private account first, because then 52% tax will be withheld. Some insurers charge extra costs for transferring money.

Annuity old regime

The policies from before 1990/1992 have many options. These policies date from before the Broad Revaluation, a major cost-cutting operation from the 1990s, after which much was cut back. Anyone who still has an annuity policy or single premium policy under this old regime can still choose from many options:

  • Have the benefit take effect immediately.
  • Postpone the payment. For example, because you receive too little or because you continue to work longer and do not want to pay too much tax on everything.
  • Pay out the annuity in one go or periodically. Paying out in one go can mean a high tax rate.
  • Donate the released annuity to, for example, a student child. Depending on the amount, this can often be done very cheaply and often tax-free.
  • Change the beneficiary if that suits you better. For tax reasons or other reasons. For example, because you have deferred benefits for so long, you are more likely to receive many years of benefits if you transfer it to someone else. You have not built up your annuity for nothing.

Unfortunately, all this is often no longer possible with the new policies, which fall under the new regime . However, with the new policies you can still choose a lifelong benefit or a benefit for a certain period, with a minimum period of 5 years. There may be all kinds of reasons, including tax reasons, for choosing a lifelong annuity.

Temporary annuity payment as a bridge

You can still use an annuity insurance policy from before 2006 as a bridging annuity, a bridge until you reach state pension age:

  • If no premium has been paid after 2005, this applies to the entire amount.
  • If premiums were still paid after 2005, this applies to the capital with the value up to and including December 31, 2005.

For a bridging annuity, the maximum payment may be 63,288 euros per year. New regime policies cannot be used for this.

Temporary retirement annuity

Then there is the temporary old age annuity for after your retirement. This has a pre-selected end date and may not commence later than when you are 75 years old and even 70 years old if the annuity was taken out after October 1, 2001. A maximum of 22,735 may be paid out per year (from 2022) and the payment term must be at least five years. In 2020 this was still 22,089.

Lifelong retirement annuity

The simplest payout is the lifelong retirement annuity. You can choose the start date yourself and the policy ends as soon as you die. Please note that this retirement annuity must commence no later than five years after your state pension age.

The balance method of the Tax Authorities

For premiums paid before January 1, 2009, the full balance method applies. After that, the limited balance method applies. The full balance method means that annuity payments are only taxed to the extent that they exceed the premiums that are not deducted for tax purposes. The limited balance method has a limitation in that a maximum of more than 2,200 euros in a year may be settled as non-deducted premium.

Key lock

Discuss the options of your annuity policy and single premium policy with a good advisor. Consult several agencies and see who offers you the most. The competition in this market is fierce, especially now that Brand New Day is shaking up the market with very competitive offers. Have the annuity paid out smartly to avoid paying too much tax to the tax authorities.

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