Do you have a “Golden Parachute” account too?

24 February 2020

Often when employees are lose their job they receive a sum of money from their employer. In the Netherlands, until 31 December 2014 it was possible to use that sum to buy a claim on periodic benefits to replace lost income; the tax burden on the lump sum payment was thus postponed and spread out over several years.
Often this happened in the form of opening a so-called “golden handshake account” to which the employer deposited the severance payment. The advantage was that income tax was not due on the deposit moment but when the money is taken out, latest in the year in which the state pension age is reached.
Since the tax rate from the state pension age is lower than before that time, a tax benefit is created. This is why these accounts were so popular up to 2014 and why the government wanted to get rid of them. Fortunately at that time it was arranged that all existing similar instruments (i.e. golden handshake accounts and policies as well as “stamrecht BV’s”) were respected by the tax authorities.
As a financial planner and intermediary for financial products, I have given many employees financial insight into their dismissal in the past and I have mediated many golden handshake account. This included a relatively large number of employees well over 50 years and are now heading towards their state pension. For them it is important to determine how much time the “bag of money” has to drain. As stated earlier, it must start in the year one reaches the state pension age. Roughly speaking, the use period for funds in golden handshake accounts varies between 1 and 30 years.
Determining a use period on a late afternoon requires skill. Such benefits must fit in with a person’s income and expenditure pattern in the short and long term.The longer the benefit period, the lower annual proceeds, but perhaps also the tax burden. The reverse applies too.
A good financial planner is familiar in this subject and can prevent easy to make irreversible mistakes.

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