Higher state pension, lower supplementary pension

The 80% rule

How much supplementary pension a self-employed individual may build up through their company is dependent on the so-called 80% rule. An important component in this calculation is the amount of the state pension. The higher the state pension, the lower any deductible premiums will need to be under the 80% rule.

The tax authorities recently issued a circular laying out guidelines on how to carry out the 80% rule calculations. In some cases, applying these guidelines can lower the pension capital that may be built up by as much as 30%. This greatly reduces the amount of the deductible pension premiums as well. It may even be that there is no room remaining at all, meaning it will not be possible to pay additional premiums into the IPT (Individual Pension Commitment) going forwards.

Keep the circular in mind

Understandably, this circular has generated many questions, and the insurance industry and tax authorities are currently in consultation. For instance, the circular’s guidelines also apply to premiums paid in 2021, despite the fact that the new calculation method was not yet known at the time. Most insurers have chosen to await the results of the consultation before applying these guidelines. We advise proceeding with caution and recommend following the circular’s stipulations, particularly for new IPT contracts or any increases.

Would you like to know what the consequences are for your pension as a self-employed person? Please contact one of our experts, we can calculate the impact for you.