Pensioensparen - fiscal pension plan for Belgians : some thoughts

[tombgrt]

Hi all,

 

First an FYI: I'm addressing this to fellow Belgians as this is purely about a Belgian fiscal pension plan called "pensioensparen". I'll be writing in English so that anyone who wishes to follow can. Basically it's a plan that the government offers to save for your pension where you get a 30% tax reduction on your deposits. The angle is that you can only invest in certain insurance products or (the more beneficial) pension saving funds ("pensioenspaarfondsen") offered by banks, insurance companies etc. You can't just put your money in an ETF and deduct that deposit from your taxes so that makes calculating the difference interesting. There is also a final taxation of 8% on a certain expected return. (At least now, it's a lot more complicated than that).

 

To continue: Anyone here saving under the fiscal pension plan through pension saving funds? If you do, why?

 

I was slightly bored just now and calculated some numbers in Excel to see what preformed best over time all things considered, the pension saving funds or a cheap world stocks ETF. As I expected, the ETF came out on top with a decent margin.

 

Here are some assumptions:

 

- 45 years duration with 2.5% max deposit inflation;

- 30% tax reduction for the pension funds, 8% taxation at 60 years old on 4,75% assumed return (by government). Also no taxation last 5 years (60-64);

- 1.28% TER for the pension fund (best I could find and no starting fees, Rabobank or Argenta. The rest is shit.), 0.17% TER for the ETF;

- 0.5% better return for the ETF as it is fully invested in stocks versus the pension funds that are at best invested 70-75% in stocks with 5% sitting in cash and the rest in bonds (often mainly sovereign). I think I'm being very generous here when looking at 10 year returns for all pensions funds and the world wide ETFs. So I went with 6% for the pension funds and 7.61% (+ (1.28%-0.17%) + 0.5%) for the ETF's.

 

I know there is also a hidden benefit in the usage of the tax advantage for every new year (You basically use your tax deduction for your new deposit so that your tax benefit compounds) but I didn't add this in my calculation. I also didn't look at the time value of the tax benefit (not sure it matters much if I would calculate the added compounding benefit? Confused...).

 

Anyway, I came out to 312,000€ (incl. tax benefit and taxation at 60 years old) for the pension plan and 483,000€ for the ETF based on these assumptions. You can remove the 0.5% extra return and the difference is still 100,000€ (in 2060). That amount is higher than the total ever contributed to the plan! I almost feel like I'm missing something. The Excel file is a total mess but I'll include it anyway.

 

There is also the added benefit of being able to pull your money out of an ETF, not so for the pension plans (unless you want to get taxed 33%+). Not to mention that the pension funds can underperform or that you can just wait out an extremely pricey market etc etc.

 

I'm truly amazed that no one seems to have done any proper in depth research on this considering how cheap ETFs have become. Maybe I'm just wrong? If not, it's obvious to me that a young person (like myself) who wants to save for later has no business using our "pension plan tax benefits system"... Especially considering how often they change policies and tend to screw people over. If you're smart, you open one at 60 years old and save 5 years without being taxed. You can then close it at 70 years old (has to exist 10 years). Drops of water on a hot plate of course.

 

Does anyone know with certainty that you can't tax deduct your deposits in ETFs? I have never heard about this possibility or anyone doing it but it would only be sensical if we could.

 

 

Cheers (if you ever got this far! ;) )

 

 

Tom

psp_vs_etf.xlsx