FAQs about Pension Plans

Our new publication provides useful answers to commonly asked questions about Pension Plans.

What are the tax benefits for contributing to a Pension Plan?
What are the tax benefits for contributing to a Pension Plan?
What are the tax benefits for contributing to a Pension Plan?

When you pay into a Pension Plan, you are saving for your future and also on your next tax bill. It's like a direct and simple reduction in your tax bill.

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Why is it important to plan my retirement?
Why is it important to plan my retirement?
Why is it important to plan my retirement?

Given the current situation of state pensions, it is advisable to have a supplementary income. This way, you won't depend entirely on your Social Security pension when you retire as you will receive an extra income to ensure your standard of living.

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How much tax is payable on my pension withdrawal?
How much tax is payable on my pension withdrawal?

Funds withdrawn from a pension plan are taxed in personal income tax as earned income. Temporarily, funds withdrawn in the form of capital from shares on or prior to 12/31/2006 are entitled to a tax reduction of 40%, and tax will only be payable on the remaining 60%. For contingencies occurring after 1 January 2015, the reduction can be applied during the next two fiscal years. For contingencies occurring between 2011 and 2014, the term is 8 fiscal years. For contingencies occurring in or prior to 2010, the term expires on December 31, 2018.

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How much tax is payable on pension withdrawals in the event of death?
How much tax is payable on pension withdrawals in the event of death?

The same tax is payable in the contingency of death as in any other contingency. Heirs or beneficiaries will pay tax on pension withdrawals in personal income tax (it is not subject to Inheritance Tax) as earned income, with the advantage that the tax payment can be deferred to a future date, as there is no obligation to withdraw the funds at the time of death, and they may remain in the plan indefinitely as beneficiaries.

Heirs or beneficiaries will also be able to apply the reduction of 40% on withdrawals of capital prior to December 31, 2006. They will be able to exercise this right for the two fiscal years after the death of the plan holder.

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What to do before withdrawing funds from your pension plan
What to do before withdrawing funds from your pension plan
  • First, ask yourself if you really need to withdraw the funds. You are not obliged to withdraw the funds in any of these contingencies. You can leave your savings invested, make transfers between funds (only in the case of individual pension plans and associated plans) and you can also continue to pay into the plan and deduct tax on these payments.
  • If you choose to withdraw the funds, try to avoid doing it in the form of capital. This is generally the least tax efficient way, as the tax impact will affect a single fiscal year and as a result, the marginal tax rate will be very high.
  • On the other hand, funds withdrawn in the form of temporary income or annuity spread the tax impact over several fiscal years. And there is also another benefit: this system is faithful to the original purpose of a pension plan, i.e., to ensure a supplementary income to the amount received from a state pension.
  • Start by withdrawing funds from pension plans that invest in conservative assets, with a lower prospective yield, and keep, if suitable for your risk profile, pension plans with a higher level of risk, but which offer a higher yield in the medium term. Remember that retirement is a stage that can last for over two decades and your savings will have to fight against inflation.
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