The advantages of buying into the 2nd pillar
Second-pillar purchases have many advantages. They improve your retirement provision by filling any gaps in your pension provision while at the same time saving you tax. The amount paid can be deducted in full from your taxable income.
Injecting cash via this "buyback" process can increase your retirement benefits by increasing the capital available and raising the pensions you receive. It can also improve financial conditions in an accident or illness or improve survivors' benefits in the event of death. This process also makes it possible to transfer cash subject to wealth tax into a tax-free pot.
Since the amounts paid are deducted from your taxable income, you can use buybacks to implement attractive tax optimisation strategies. To do this, it is essential to have the proper support and to pay attention to the points explained below.
Limitations and conditions for buybacks
Your pension fund regulations may allow you to make purchases if, for example, your insurance conditions have improved (insured income, coordination deduction, etc.), your income has increased, you have taken a break from work, or you are divorced. There are, however, limits and conditions for buying in to avoid over-insurance.
High additional payments after divorce
One of the events that can create a significant gap is the division of second-pillar assets in the event of divorce. The gap resulting from a payment to the other spouse offers the possibility of making tax-deductible purchases.
The importance of buybacks over several years
Making buybacks over several years is particularly interesting, as this allows you to break the tax progression repeatedly. However, be careful not to pay an amount that would reduce your taxable income to zero, as the tax gain will be partly cancelled out when capital tax is paid on the withdrawal.
However, you must respect the 3 years between your last purchase and the payment of your lump-sum benefit.
Risks associated with tax increases.
Higher taxes can eliminate the savings you make by buying in. When you retire, if you do not receive your assets in the form of capital and you receive a higher annuity, this is taxed at 100%, which can lead to a higher tax increase.
Exceptions when funds have been withdrawn.
If you have withdrawn funds from your pension fund to buy your own home (EPL withdrawal), you must repay this amount before making further purchases and deducting them from your tax. The exception to this rule is purchases made after a divorce.