Bonus Plan | 1 | 30/05/2018 | AG Employee Benefits - Trust in - - PowerPoint PPT Presentation

| 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 product

Cash 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 profit sharing continue to apply – Conditions: granted for the purchase, construction, improvement or renovation of real estate in the European Union (if self-employed status: 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 depend

• n 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 Plan

For 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

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• 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 Advances

A 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
• f the advance with interest payments = 3.315,47 €.

Conclusion: from a purely economic perspective, the two types of advances are equivalent alternatives

Advance with annual interest payments Advance without annual interest 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.