Pension for director-major shareholder requires careful consideration 

It has been shown that a director-major shareholder (“DMS”) generally prefers to accumulate his pension rights within his own company.  This is consistent with the entrepreneurial spirit to retain control and to be prepared to take some risks when they are compensated by clear advantages.

Normally the decision also has a financial background: the pension capital has a significant financing role within the company and the returns achieved within the company can exceed those offered by insurance companies.

However, managing your own pension also has its disadvantages. For example, the reserved pension capital might eventually pass to the creditors of the company (entrepreneurial risk) and the ‘survivor risk’ is not really covered. Moreover, the amount reserved for the pension is often insufficient as a result of tax rules. This can have serious consequences when the accrued pension rights are transferred or when the value of the investments has decreased. This is because there is a harsh sanction on waiving even a minor portion of the pension entitlements that still have some value: the full pension entitlement will be subject to a progressive tax plus 20% deemed interest.  Dividend distributions can normally be made at a lower rate and are far more flexible than a pension scheme. It is clear that arranging the pension for the DMS requires careful consideration. The pros and cons will need to be carefully weighed before taking a decision.

Original title: Pensioen voor de dga kan aanleiding geven tot veel hoofdbrekens