Supplementary pensions taxed at 10% When are you “effectively active”?

Supplementary pensions taxed at 10% When are you “effectively active”?
11 Mar 2016

In order for certain pension lump sums to be taxed at 10%, it must be attributed or paid out before the legal retirement age is reached (which is presently 65 years); also, the worker (or the company director) must remain “effectively active” without interruption during the three years preceding the legal retirement age. The tax administration gives a broad interpretation to this notion.

Workers and company directors must have effectively carried out an occupational activity during the three years that preceded the legal retirement age in order to have their supplementary pension capital taxed at 10%. 

However, the tax administration treats as normal active periods some periods during which workers (or company directors) are inactive or reduce their activities, so that they can be taxed at the reduced rate.

According to the advice to employers on tax slip no. 281.11 relating to incomes earned in 2015, this also applies to a period during which the beneficiary receives unemployment benefits with a company supplement, insofar as he is available for work in accordance with the unemployment regulations. 

In a tax ruling of 20 October 2015 (no. 2015.422), published on 4 March 2016, the Ruling Commission considered that the term “effectively active” does not mean that the work performance must be real. The Ruling Commission thus decided that a worker remains “effectively active” even if he is exempted from performing work, as long as the employment contract is neither suspended nor terminated and the worker continues to receive his normal pay until the legal retirement age.

> Action point
Note that for end-of-career regimes, certain periods during which workers (or company directors) were inactive or reduced their activities can be treated as active periods and so be taxed at 10%, which is a favourable rate applied to certain supplementary pension lump sums.