Classic long-term savings versus passive investing via ETFs: how to make the right choice | MyGuide

This can be done via a branch 21 or branch 23 formula. For our comparison we assume a branch21. You will then receive a fixed base interest rate, possibly supplemented with annual profit sharing, if the insurer managed to reinvest your deposits at a profit.

At the same time, you pay less taxes every year: as an encouragement to build up an extra pension, the government gives you a tax reduction of 30 percent of the premiums paid, with a maximum of 2,450 euros in 2024.

You will usually be paid out the accrued capital when you are 65 years old, but you can also continue for longer. Good news: you will then continue to enjoy the tax benefit.

Retired a year early: what are the financial consequences?

We take the branch21 formula AG Insurance Top Return as an example. For the sake of completeness: AG Insurance also offers a branch 23 formula under the name Top Multilife.

Our parameters
Suppose you are 42 years old. You start with long-term savings via AG Insurance Top Rendement and you continue until you are 65 years old: from 2024 to 2047. For our example, we assume that you deposit 2,450 euros every year, the maximum amount based on the tax benefit. So you do that for 24 years. This gives you an annual tax benefit of 735 euros and a guaranteed, fixed basic interest rate of 1.75 percent. An amount of interest that increases year after year, as you can see in the table below, as the capital increases. You may also be entitled to a profit share: in 2023 the total return would be 2 percent.

Taxes and costs
You pay annual premium tax on the amounts deposited: 49 euros in our example. You also have to pay an entry fee every year. For AG Insurance Top Rendement, the entry costs can be up to 6.50 percent, but if you sign up via Spaargids.be, they amount to 0.50 percent. There are no management costs. Are you 60 years old and did you start long-term savings before the age of 55, as in our simulation? Then you pay 10 percent final tax on the accrued capital and the return. For the sake of completeness: if you only start long-term savings after the age of 55, you will pay this final tax after ten years. You do not pay any final tax on the profit sharing.

Results
If you are 65 years old, in our example you will ultimately be paid out 62,920 euros plus a possible profit sharing, while you deposited 58,800 euros in all those years together. At the same time, you paid 735 euros less in taxes every year, or a total of 17,640 euros. In reality, you can get paid more and also realize a greater tax benefit, but then you must always deposit the maximum amount based on the 30 percent tax benefit. For our calculation we stuck to the maximum amount for 2024, but in practice that amount is indexed every year. Read more about the latest indexations for savers and investors here.

Reading tip: What happens to your pension savings if you die prematurely?

That may be possible. But with the emphasis on ‘possible’. For example, you could invest in the long term in so-called ETFs or Exchange Traded Funds on the stock exchange. ETFs usually track a stock market index. Such an index represents the average price of a number of companies. An ETF that tracks this stock market index tries to match the performance of the index as closely as possible.

Why would you invest in this?
Because, for example, you immediately invest with it in a diversified manner, as it should be. At the same time, you pay few management costs. Moreover, ETFs often yield more than actively managed funds, as shown last year by the European version of Morningstar’s Active/Passive Barometer 2023.

Risk remains
But the rule of investing remains valid: greater potential returns always come with greater risk, even if you invest in ETFs. So yes, investing in ETFs can yield more, but you have no capital guarantee, while ETFs can be subject to fluctuations on the stock exchange. Proponents will then tell you that the stock market will improve in the long term, and therefore possibly also an ETF that tracks part of that stock market.

The stock market can always crash just as you retire. That is one of the risks of ETFs that you should take into account. If you prefer not to take that risk, long-term savings may be a safer option. When you make the comparison, do not only look at the return, but also do not forget to include the tax benefit of long-term savings in the exercise. You could reinvest that every year.

Read more on Spaargids.be:

Long-term savings: you also enjoy tax relief after the age of 65

Belgians are too dependent on statutory pension: how do you solve that?

Automatic reminder for those who do not claim a supplementary pension within six months

This article was brought to you by our partner Spaargids.be.
Spaargids.be is an independent comparator of banking products and looks for competitive prices and better interest rates.

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