In short:
- Deducting a PER contribution only helps if you pay income tax.
- A deducted contribution is taxed on a lump-sum exit, under the income tax scale.
- The non-deduction option avoids tax on the capital paid in; only gains are taxed.
- The choice is made contribution by contribution and cannot be undone.
The usual mechanism
The PER is designed for taxpayers: deduct today, pay tax in retirement. The advantage relies on the gap between your tax bracket while working and in retirement.
The non-taxpayer household
| Contribution | Saving on the way in | Tax on capital paid in, on a lump-sum exit |
|---|---|---|
| Deducted | None if you pay no tax | Yes, under the income tax scale |
| Not deducted (option) | None | No, only gains are taxed |
How to use the option
Tell the insurer or bank at the time of the contribution. It can also suit a household in a low bracket that expects higher taxation in retirement.