Don’t rush into your last chance for long-term savings

While there is no political consensus on the plans yet, several brokers have already written to their clients to let them know about that possibly last chance. According to a survey, this will not lead to extra registrations for the time being, but anyone who decides to conclude a contract quickly should pay attention to five things.

You can take out a long-term savings contract up to the age of 64. You can choose the final expiry date of the contract yourself. This distinguishes long-term savings from pension savings, which only allow you to save tax-efficiently until you turn 64.

There are conditions. The contract must run at least until the age of 65 and have a minimum term of ten years. Those who conclude their contract before the age of 55 pay a final tax of 10 percent at the age of 60. Those who do so between the ages of 55 and 64 pay the final tax when the contract runs for ten years. Once the final tax has been paid, you can withdraw your money free of charge from most insurers, even if your contract has a longer term.

‘Once the tax due has been levied, the customer can withdraw the reserve on his contract at any time, without tax penalty and without costs. So he should not wait until the end date of the contract’, says Gerrit Feyaerts, spokesman for AG Insurance. Long-term savings contracts can also be bought off at Vivium without exit costs. “The condition is that the withdrawal takes place after the legal retirement age and on the condition that the contract has been running for at least ten years,” says spokesperson Julien Hayen. ‘Partial withdrawal is also possible at no cost.’

When concluding a contract, it is therefore better to set the final due date as late as possible. With various insurers, this is even possible up to your 99th birthday. Then you can make tax-efficient deposits for as long as you wish. Moreover, due to the long term you are less subject to the whims of the stock market and you can buy off the contract at a favorable (stock market) time.

Keep in mind that the conditions may differ per insurer. An early surrender is sometimes associated with costs. The message is to inform in advance. ‘The possibility of surrender and any associated costs are best discussed in the agency’, reports Belfius, where contracts for long-term savings can be accepted up to the age of 80.

Also important is that some contracts require a minimum annual deposit. At Baloise that is 600 euros per year, or 50 euros per month. That minimum deposit is important if you opt for an extra long term.

A long contract term is one thing, but that does not mean that you can endlessly benefit from the maximum tax benefit. The maximum deposit that qualifies for the tax benefit also depends on your income and the loans you have.

Those who have no taxable income at all cannot enjoy a tax advantage if they do long-term savings. Those who want to deposit the maximum amount of 2,350 euros and are still working must earn roughly more than 3,450 euros gross per month. Those who are retired and can still put something aside from their state pension can also do long-term savings. However, the maximum amount you can deposit may be less than EUR 2,350, depending on the state pension you receive. Have the maximum amount you can deposit calculated in advance, even after your retirement.

The tax benefit of long-term savings is in the same basket as housing loans taken out in Flanders before 2016 (in Brussels before 2017) for one’s own home and loans taken out for a second home. Anyone who has such a loan and declares the capital repayments in his tax return probably no longer has room for long-term savings.

You will receive a tax reduction of 30 percent on the deposit. For the maximum deposit of 2,350 euros in 2023, you will recover 705 euros.

Typical of an insurance contract is that you must define a policyholder, an insured and a beneficiary. With long-term savings, you are the policyholder, the insured and the beneficiary while alive. You must also indicate who will receive the accrued capital if you die before the expiry date of the contract. That beneficiary must be either your spouse, your legal cohabitant or a second-degree relative. This concerns children, grandchildren, parents, grandparents, brothers and sisters.

Those who do not have relatives in that degree of relationship cannot therefore do long-term tax savings. Actual cohabiting partners are also not eligible. Please note that this construction does not release the beneficiary from inheritance tax if you die before the contract date.

When choosing the beneficiaries, it is advisable to choose the wording in such a way that you do not have to adjust the contract every time your family situation changes. You can also determine a sequence of beneficiaries. This prevents an adjustment from being forgotten in a changed family situation.

An important choice is that between branch21 and branch23. It determines where your savings are invested and how much risk you take. At tak21 you do not take any risk and you go for a guaranteed return. On top of that guaranteed return, you get a profit share that depends on the performance of the financial markets.

Due to the rise in interest rates, guaranteed interest rates have once again risen well above 0 percent. This is 1.5 percent at the market leader AG Insurance and at KBC Insurance. Vivium/P&V raises the guaranteed interest rate from 1.2 to 1.7 percent on April 30. At Baloise, the guaranteed interest rate is currently 1.6 percent, at Federal Insurance it is 1.25 percent and at Argenta 1.2 percent.

There are also insurers that offer 0 percent guaranteed interest, but compensate that with a higher profit share. This is the case at Allianz, where the global gross return in 2022 was 2 percent. NN also offers 0.01 percent guaranteed interest with a higher profit share.

Those looking for a potentially higher return can also turn to the branch23 funds. These are investment funds that invest in shares and/or bonds. The risk is higher, so there is also a chance of loss. Athora has the largest branch23 range for long-term savings. You can choose from 50 funds.

The choice for branch 21 or branch 23 determines the remainder of the term of the contract. Switching from branch23 to branch21, for example if you are getting closer to the moment you want to withdraw your money, is not possible within the same contract. Several insurers also have defensive funds in their branch23 offering, so switching from one fund to another can also be a way to expose your money to less risk.

Some insurers also offer branch 44 formulas. They are a combination of tak23 and tak21, in which you have the option to flexibly adjust the weights of both. This is the case, for example, with Baloise’s Save Plan.

Costs are an important element in long-term savings. With every deposit you pay an insurance tax of 2 percent to the tax authorities. In addition, there are the entry costs for the insurer or broker. Negotiate them because sometimes they can go up to 6 percent or more. Such high costs can hardly be recovered even over a long term.

You also have to take into account management costs. These are usually limited for branch 21 funds, but for branch 23 funds you have to watch out for double management costs. The insurer charges management costs, and if the branch 23 fund invests underlyingly in a banking fund, you must also add the management costs of that fund. This often means that annual costs are well above 2 percent.