PLCI/VAPZ or pension savings: which should the self-employed fill first?

Two self-employed people, two choices

The difference in one sentence: a deduction versus a reduction

The PLCI is a deduction: the premium comes off your taxable income, so the saving depends on your marginal rate. Pension savings are a reduction: the State takes 30% or 25% of the payment off your tax bill, whether you earn little or a lot. Everything else follows from that difference.

The PLCI/VAPZ is a second-pillar contract reserved for the self-employed, assisting spouses and helpers. Pension savings, the third pillar, are open to any taxpayer aged 18 or over, employed or self-employed, through a fund or an insurance policy.

Neither counts towards the 80% rule, and only one pension savings contract qualifies for the reduction each year, even if you hold several.

Side by side

On paper, the PLCI wins almost every line for someone self-employed as a main occupation: a ceiling nearly four times higher, a benefit that grows with income, an effect on social security contributions. Pension savings keep two advantages: they are open to everyone, and the benefit does not depend on income.

What €100 paid into each product brings back

On a middle or high income, €100 of PLCI is worth more than €100 of pension savings. In the 50% band, the PLCI deduction cuts federal tax by €50, against €30 for pension savings. At 45%, the gap is still clear: €45 against €30.

The sum flips at the bottom of the scale. If your last euro falls in the 25% band, €100 of PLCI saves only €25 in tax, less than the €30 from pension savings. The PLCI still has a second effect: it lowers the income on which INASTI calculates your contributions, at 20.5% in the first band.

That second effect does not show on your tax assessment notice. It appears later, when your social insurance fund adjusts your contributions to your final income. The PLCI simulator works out the tax saving from your income.

The pension savings trap between €1,050 and €1,260

The €1,350 ceiling only pays more if you put in more than €1,260. Under that option, the reduction drops to 25% on the whole payment. €1,050 at 30% gives €315.00; you need €1,260 at 25% to get the same amount.

The higher ceiling does not apply by itself: you request it every year from your bank or insurer. The amount to declare appears on the 281.60 certificate they send you, and it is pre-filled in the online tax return.

A payment of €1,200 under the 25% option therefore brings €300.00, less than €1,050 under the 30% option. Between the two ceilings, pay either €1,050 or the maximum.

Both together: in which order?

Nothing stops you combining them: the PLCI and pension savings are two separate schemes, each with its own ceiling. For someone self-employed as a main occupation, the usual order is the PLCI up to the ceiling, then the POZ/CPTI or the IPC depending on whether you work in your own name or through a company, then pension savings.

The order changes in three situations. A self-employed person with a side activity whose contributions stay below those of a main occupation cannot take out a PLCI: pension savings become their first tool. A very low income, taxed at 25%, makes pension savings better value per euro on tax alone. And tight cash flow makes the small pension savings payment preferable to a PLCI premium of several thousand euros.

The PLCI condition also weighs on the order: the premium is only deductible if your social security contributions for the year are paid in full. Falling behind with your fund costs you the deduction, not just surcharges.

At exit: two different tax rules

Pension savings are taxed early and once: 8% is levied on your 60th birthday on capital and returns, even if you withdraw nothing. A contract signed after 55 is taxed on its tenth anniversary. Withdrawing before 60 is expensive, often 33%.

PLCI capital follows the notional annuity logic: the tax authority converts it into an annual annuity of 4% to 5%, taxed at the marginal rate for 10 years, or 13 years before 65. A NIHDI levy of 3.55% and a solidarity contribution come on top. The PLCI guide explains the calculation.

PLCI/VAPZ or Pension savings: how to decide

Further reading

The pages on this site that explore each of the points covered here in more depth.

• The PLCI/VAPZ: ceilings, tax and choosing a contractThe full guide to the free supplementary pension, social PLCI included.
• Pension savings: ceiling and tax reductionFund or insurance, exit at 60, fees to compare.
• PLCI simulatorWork out your maximum premium and your tax saving.
• PLCI/VAPZ: the definitionThe glossary entry, in a few lines.
• Main occupation or side activityThe status that decides whether you can take out a PLCI.
• Request a call backAn adviser or broker registered with the FSMA may get back to you, free of charge and with no obligation.

Frequently asked questions