bonus plan - vmware...your bonus plan: a tax-efficient way to reward your employees sample case...
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| 1 | 30/05/2018 | AG Employee Benefits - Trust in Expertise
Bonus Plan
| 2 | 30/05/2018 | AG Employee Benefits - Trust in Expertise
Your Bonus Plan: a Tax-Efficient Way to Reward
your Employees
Sample Case
Comparison based on a gross bonus payment of EUR 10,000
paid out as salary vs in the form of group insurance
€13,000 €11,420.63€4,042.25 Cash Bonus Plan
87.85%31,09%
11,420.63
Cash Bonus Group insurance
Cost to employer 13,000 Cost to employer 13,000
Employer NOSS contribution (30%) -3,000 Employer NOSS contribution. 8.86%
Gross salary 10,000 Tax 4.4%
Employee NOSS contribution (13.07%) -1,307
Tax (53,5%)(incl. 7% municipal tax)
-4,650.76
Net bonus for the employee 4,042.25 Net investment for the employee
Management fees 0,5% - 57
- 1,521.98
| 3 | 30/05/2018 | AG Employee Benefits - Trust in Expertise
Affiliated for 40 years – Capitalized productCash Group Insurance
=EUR 13,000
NET
EUR 4,042.25 x 25 years
30% Employer Social Security
13.07% Employee Social Security
53.5% tax + 7% municipal tax
EUR 13,000
NET
EUR 11,420.63
8.86% Soc. Sec.
4.4% Tax
0.5% Management
costs
n = 25 years
capital
EUR 315,098.14
EUR 265,765.90
2% solidarity contr.
3.55% Soc. Sec.
Tax*
*10.09% withholding tax + 7% municipal tax
In order to reach the same retirement benefit amount, an investment of the net salary must generate a return of 7.27%.
What return is possible when you invest in group
insurance?
0.75%
EUR 6,301.96
EUR 11,185.98
EUR 31,844.29
| 4 | 30/05/2018 | AG Employee Benefits - Trust in Expertise
Cash option: taking out an advance
– Advance = amount the affiliate can obtain on the accrued reserves in his/her group insurance contract while the same guaranteed interest rate and profitsharing continue to apply
– Conditions: granted for the purchase, construction, improvement or renovation of real estate in the European Union (if self-employedstatus: in the European Economic Area)
– Choice between three types of advances:
► advance with yearly interest payments at a fixed interest rate (5%)
► advance with yearly interest payments at a variable interest rate(1.25%)
► advance with no yearly interest payments (interest rate will dependon the guaranteed return and annual profit sharing)
– Benefits: employees can take immediate advantage of employer contributions, with no handling or management fees to pay, and no adverse effects on the guaranteed interest rate or profit sharing.
Benefits of a Bonus PlanFor the employee
| 5 | 30/05/2018 | AG Employee Benefits - Trust in Expertise
There are 3 types of advances:
• Advances with yearly interest payments
– at a fixed interest rate
– at a variable interest rate
• Advances without yearly interest payments
What are the different types of advances?
Spotlight on Advances
| 6 | 30/05/2018 | AG Employee Benefits - Trust in Expertise
• Advance with yearly interest payments
– How does it work?
The affiliate applies for an advance and pays interest annually in advance.
– What is the interest rate?
The affiliate may choose between a fixed or variable interest rate.
• Fixed rate: 5.0%
• Variable rate: 1.25%
– Are the interest payments tax deductible?
The affiliate may deduct the interest payments on his/her tax return in
accordance with the applicable principles of personal income tax.
How much will an advance on my Pension4Life contract cost me?
Spotlight on Advances
| 7 | 30/05/2018 | AG Employee Benefits - Trust in Expertise
• Advance without yearly interest payments
– How does it work?
Interest is due in full when the advance is paid back or on the contract
maturity date.
– What is the interest rate?
The interest rate is calculated based on the guaranteed return, annual profit
sharing and the financial margin.
– Are interest payments tax deductible?
The affiliate may deduct the interest on his/her tax return when the advance
is paid back or on the group insurance contract maturity date, in accordance
with the applicable principles of personal income tax.
How much will an advance on my Pension4Life contract cost me?
Spotlight on Advances
| 8 | 30/05/2018 | AG Employee Benefits - Trust in Expertise
• Applying for an advance has no effect on group insurance returns.
• ROI and profit sharing will continue to apply to the total amount of reserves in
the contract (i.e., including the amount taken as an advance)
• The net cost of the advance is therefore equal to the difference between:
– The total return on the group insurance contract (guaranteed interest rate +
profit sharing)
– The interest rate on the advance
How will this affect the return I earn on my group insurance
investment?
Spotlight on Advances
| 9 | 30/05/2018 | AG Employee Benefits - Trust in Expertise
• The maximum amount is calculated in accordance with the applicable principles of Belgian legislation.
Accrued reserves:
- Tax liability and parafiscal charges deducted at maturity- Surrender fees (if surrenders are authorised)- Interest (only for advances without yearly interest payments)
= Maximum advance
• Maximum amount that can be taken as an advance:– 50-74% *
• Minimum amount that can be taken as an advance: €5,000
How much can I take out as an advance?
Spotlight on Advances
* Percentages vary according to age
| 10 | 30/05/2018 | AG Employee Benefits - Trust in Expertise
• No obligation to repay the advance!
• If the affiliate opts not to repay the advance during the lifetime of
the group insurance contact:
– The advance will be deducted from the retirement proceeds
payable on the contract maturity date.
• If the affiliates opts to repay the advance:
– Repayment can be made at any time, in full or in part.
– Repayment must be at least 10% of the advance, with a
minimum payment of €250.
How and when do I pay back the advance?
Spotlight on Advances
| 11 | 30/05/2018 | AG Employee Benefits - Trust in Expertise
Spotlight on AdvancesA practical example
Variables
Duration of the advance = 20 years (from age 45 to 65)
Guaranteed return = 0.75%
Profit sharing = 1.75%
Advance with annual interest payments: interest rate = 5%
Advance without annual interest payments: Interest rate = 5%
Cost of opportunity
Definition: the appraisal of the loss of the next best alternative to an economic
decision
Applied to advances:
Advance with annual interest payments: each year the interests have to be paid
Advance without annual interest payments: payment of the interests on
settlement
Conclusion: in case of an advance without annual interest payments the
amount of the annual interests is kept available for investment.
The (unrealised) return on this investment = opportunity cost of an advance
with annual interest payments.
| 12 | 30/05/2018 | AG Employee Benefits - Trust in Expertise
A practical example
Taking an opportunity cost of 5% into account (= the loss of a possible return of 18.399,06 €), the end result of the advance with interest payments = 3.315,47 €.Conclusion: from a purely economic perspective, the two types of advances are equivalent alternatives
Advance with annualinterest payments
Advance without annualinterest payments
Situation at withdrawal of the advance (age 45)
Total reserves 50.000,00 € 50.000,00 €
Total advance 25.000,00 € 25.000,00 €
Annual interests 1.250,00 € 0,00 €
Situation on settlement (age 65)
Total reserves 82.140,90 € 82.140,90 €
Taxes 10.426,37 € 10.426,37 €
Total advance 25.000,00 € 25.000,00 €
Annual interests 25.000,00 € 41.198,03 €
Net result 21.714,53 € 5.382,09 €
| 13 | 30/05/2018 | AG Employee Benefits - Trust in Expertise
► An attractive interest rate (low net cost!)
► 3 types of advances to choose from:
Advances with yearly interest payments at a fixed interest rate
Adcances with yearly inteets payments at a variable interest rate
Advances with no yearly interest payments
• No administrative fees or legal fees, unlike mortgage loans
Summary of key features
Spotlight on Advances
Advances can be repaid at any time.
The (guaranteed) interest rate and profit sharing will continue
to apply to the total amount of reserves in the group insurance
contract.
Your account will be managed by a team of specialists.