Insurance

Capitalisation

By the Finances Indépendants editorial teamUpdated on 3 min readAlso known as: Capitalising, Compound interest

Contents
  1. What is capitalisation?
  2. Capitalisation or annuity
  3. Branch 21 and branch 23
  4. What happens on exit
  5. Not to be confused with
  6. Further reading
  7. Frequently asked questions
10%
Tax on exit from a pension contract, excluding social security leviesFPS Finance2026
4.4%
Insurance premium tax on entry, except for the PLCI/VAPZFPS Finance2026

What is capitalisation?

Capitalisation means reinvesting the returns on an investment instead of paying them out, so that they generate returns of their own. It is the mechanism of compound interest: the return is earned on a capital sum that grows every period.

In Belgian life insurance it takes on a tax dimension. The returns stay inside the contract without being paid out, so they do not trigger an annual withholding tax on movable income. The tax deferral itself benefits from capitalisation, which widens the gap over a long period.

Capitalisation or annuity

An annuity pays out a periodic income; capitalisation builds up a lump sum. The two meet different needs and do not compete over time: you capitalise during your career and may convert the sum into an annuity at retirement.

In Belgium, the vast majority of second-pillar pension contracts are paid out as a lump sum. Annuities remain marginal, partly because the tax regime for the lump sum is predictable and a lump sum leaves you free to decide how to use it.

Branch 21 and branch 23

Both types of product capitalise, but not in the same way. Branch 21 offers a guaranteed rate, possibly topped up with a profit share: the capital cannot fall because of the markets. Branch 23 is invested in funds, with no guarantee: the return follows the markets, up and down.

The choice depends on your time horizon and tolerance for risk, not on the advertised return. A pension contract paid out in twenty years is not managed like savings you need in three years.

What happens on exit

Deferring tax is not an exemption: tax is charged when the contract pays out, under the contract's own regime. For an IPC (individual pension commitment, EIP/IPT) or a POZ/CPTI (pension agreement for the self-employed), it is a flat rate of 10% at the statutory pension age; for a PLCI/VAPZ (free supplementary pension for the self-employed), it is the notional annuity taxed at your marginal rate. In both cases the NIHDI (INAMI/RIZIV) levy of 3.55% and the solidarity levy come on top.

For an ordinary life insurance policy, the regime depends on the type of contract, its term and the nature of the returns. Ask the insurer to confirm the applicable regime before you sign: that is what determines the net return, not the gross return advertised.

Not to be confused with

The terms close to Capitalisation and what sets them apart.

Capitalisation and an annuity
An annuity pays out a periodic income and is taxed as it goes. Capitalisation builds up inside the contract and defers tax until exit.
Capitalisation and a tax exemption
Capitalisation defers tax; it does not remove it. Tax is charged when the contract pays out, under the contract's regime.

Further reading

Capitalisation: frequently asked questions

  • It means letting the returns build up inside the contract instead of taking them out. No annual withholding tax on movable income is charged while the contract runs: tax is charged only on exit, under the applicable regime.

  • No, it defers it. The deferral is an advantage in itself, since the sums not deducted keep earning returns, but tax is still charged when the contract pays out.

  • Branch 21 offers a guaranteed rate, possibly topped up with a profit share, and protects the capital. Branch 23 is invested in funds, with no guarantee: the return follows the markets in both directions.

  • In Belgium, most second-pillar pension contracts are paid out as a lump sum, because the tax regime is predictable and a lump sum leaves you free to decide how to use it. An annuity meets the need for a regular guaranteed income.

  • For an IPC or a POZ/CPTI: a flat rate of 10% at the statutory pension age. For a PLCI/VAPZ: a notional annuity taxed at your marginal rate for 10 years. In both cases, the NIHDI levy of 3.55% and the solidarity levy come on top. For an ordinary life insurance policy, the regime depends on the contract.

  • No. The gross return applies to the net premium, after insurance premium tax and entry charges, and the result is then subject to exit taxation. Always ask for a projection net of all these items.

Official source

  1. FSMA. View (new tab)(Official source, accessed on 2026-09-19)