CEA would like to address a sincere thank you note to the German Insurance Association ( GDV ) to have conducted this study on its behalf.

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1 Tax treatment of 2 nd and 3 rd pillar pension products Introduction In the past, Life Insurance products used to benefit from a special favourable fiscal treatment. netheless, in recent years, insurance products frequently have been granted with the same taxation treatment as savings / investment products, exception made to some well defined types of insurance products. The purpose of this study is to give a broad overview of the 2 nd and 3 rd pillar insurance products European panorama with regard to income tax. This study aims to illustrate the main tax treatment differences of the occupational pension schemes and private life insurance arising in several CEA Member States and proposes to define a taxation trend to these products. CEA would like to address a sincere thank you note to the German Insurance Association ( GDV ) to have conducted this study on its behalf. Executive Summary In some European countries, the taxation treatment granted to the insurance products subscribed under the 2 nd and 3 rd pillar is not generally different from the one that is usually foreseen for a normal savings / investment product. A concrete exception note should be addressed to insurance products related with old age provisions and for special cover either for relatives, in case of death, invalidity, sickness, which are provided with a favourable fiscal framework. In the majority of the European countries, the taxation treatment trend whether for occupational pension schemes or for private life insurance is exemption at the contribution stage, exemption during the portfolio investment period (the capital build up period), and the taxation of the benefits during the payout period ( EET ).

2 Rev (11/07) Treatment of 2 nd pillar pension products with regard to income tax (status 2007) Occupational Pensions schemes: Country Austria EET Occupational group insurance employer contribution Employee: taxexempt Employer: business expense Up to max. 10% of the wage or salary Only annuity benefits possible (except a trifling sum) employee contribution... Insurance with provident purpose, except the insurance applies to statebacked pension provision Employee: taxexempt Employer: business expense Only for premiums till 300 per year and person, only with 25% of the benefits no, if a statebacked pension provision... lump sum: tax free annuities: taxable once the benefit exceeds the value of the annuity Lump sum up to a trifle is tax free Belgium EET Collective pension schemes in kind of life insurance or pension fund Employer share: deductible Employee share: taxrelief Age 60, for annuities, for lump sum, but with a fixed rate Individual pension schemes as life insurance Employer share: limited deductible Employee share: taxrelief Age 60

3 Country Denmark ETT Endowment insurance / Capital pension scheme Premiums deductible up to DKK p.a., if premiums are deductible A yield tax of 15 % is levied Annuity insurance Premiums are fully deductible, if premiums are deductible A yield tax of 15 % is levied France EET Defined contribution contracts Only annuity benefits and restriction regarding amount, full, but there is a reduction of 10% and 20% Germany EET Direct insurance (employersponsored life insurance) Pensionskasse Pension fund Premiums taxfree up to in 2007 ( in 2008: ). As a rule, benefit payout not before minimum age 59. Payout in the form of pension payment as a rule. Benefits fully taxable. Possibility of partial payout of capital up to 30 % of the capital available at the beginning of benefit payout; also fully taxable. Possibility of optional capital payment of the full capital available under a Pensionskasse or direct insurance (if agreed) at the beginning of pension payout; also fully taxable. (As a rule: lifelong pension)

4 Country Greece TTE te: This reply concerns strictly group insurance schemes subject to 3rd pillar. Greek legislation does not provide for any distinction as whether such schemes belong to 2nd and/ or 3rd Pillar only. Group life insurance (annuity and lump sum) Employers payments: deductible up to per employee. Employees contributions: deductible up to from family income (per couple)., if policyholder and beneficiary not differentiated., if the beneficiary is other than the policyholder. Taxation under the provisions of Inheritance and Donation Tax Code. Hungary (T)EE / EEE??? Compulsory pension funds Voluntary pension funds 30% of the payment deductible from tax.. 1. Payment of employee: 30% of the premiums, max HUF/400 are deductible from tax 2. Payment of employer: free from Social Security Tax (max. up to 130% of the official minimal wage) t accessible until pension age. 10 years (for >52 year old people until pension age) Benefits are tax free Benefits are tax free Ireland EET Pensions Products individual and employer arrangements Full tax relief on contributions up to certain limits Funds rollup free of tax. At retirement, a limited amount may be taken as a taxfree cash sum. The remainder is taxed as income.

5 Country Italy ETT Individual pensions schemes: Pension life insurances complying with the following conditions: Duration of at least 5 years Benefits in form of annuity (for at least 50% of the capitalised amount) Beneficiaries qualifying as for retirement age Occupational pension schemes: Pension funds Premiums and/or contributions deductible from income up to 5165 per year 5years Benefits in form of annuities at the retirement age; a lump sum with 50% of the capitalised amount is possible Annuity: liable to income tax with respect to the amount of deducted premiums and/or contributions; flat rate taxation of 15% relating to the payouts as from 1/1/2007 onwards. A 0.3% extra relief is allowed for each membership year exceeding the 15.th, until a 6% reduction is reached (the 15% rate falls to 9% after 35 years participation to the pension scheme). Transitional rules apply. Income from capital taxed by a substitute tax of 12,5 % upon the interest elements into the payments. Lump sum (max. 50%): Separate taxation by the average tax rate over the previous 5 tax periods; flat rate taxation of 15% relating to the payouts as from 1/1/2007 onwards. Accumulation: Annual taxation of the accrued income by a special tax of 11%; paid by the insurer or by the pension fund (ETT system). Accumulation: Annual taxation of the accrued income by a special tax of 11%; paid by the insurer or by the pension fund (ETT system). A 0.3% extra relief is allowed for each membership year exceeding the 15.th, until a 6% reduction is reached (the 15% rate falls to 9% after 35 years participation to the pension scheme). Transitional rules apply. Luxembourg EEE TEE Pension Funds and group life insurance Employee.. Employer yes.. no (20% tax) Up to % contribution to social security

6 Country Netherlands EET Annuity For contributions made by employer and by employee Portugal EET Pension fund subscribed by the employer. subscribed by the employees if there are acquired and individualized rights, and at least ⅔ of the benefits are paid in the form of life annuity (A) otherwise (simple expectation): no taxation (B). 20% of the contributions invested each year. After the age of 55 and 5 annual payments of the insurance , depending from insured s age (A) like Private pension scheme (B) If the benefits are Lump sum. the premiums paid are taxable like income from employee work (⅓ of this income are exempt, until ,70). the positive difference between the pension fund s benefit and the total premiums paid (like Private pension scheme) Annuities: like Private pension scheme (Before the transformation of capital into annuity the difference between benefit and total premiums paid is taxable).. Like Private pension scheme PPR, PPR/E (see there) Sweden ETT Annuity Insurance.. (Bookreserve schemes) Premiums of maximum 35 % of the employees wages (or euro) may be deducted Same as above minimum period but certain other conditions for deductibility are applied. Annuity can not be paid out before the age of 55 and has to be paid out during at least 5 years, it can not be lent against, transferred, disposed of etc (Pensions foundation)

7 Country Switzerland EET Group life insurance Pension schemes from pension trusts Public and private staff pension insurance Full deductibility of premiums and purchase payments Benefits in principle not before the age of 58 Payments as annuity or lump sum possible Payments are fully taxable Benefits in the form of a lump sum are taxed at a reduced rate Spain EET Group Pension Plans (voluntary and private providential institutions). Group life insurance policies Contributions deductible: in general 8,000 per year Maximum limit of 24,250 per year for participants aged 65 or older... Premiums are not deductible Payments not possible prior to retirement, with the exception of grave illness or longduration unemployment The employee always acquires pension rights.. The employee may not acquire pension rights until retirement (more common) /, payments are considered earned income / Lumpsum payments can receive a 40% reduction / Payments as annuity are fully taxable.., payments are considered earned income / If premiums are not imputed to the employee, lumpsum payments can receive a 40% reduction / If premiums are imputed to the employee, lumpsum payments can receive a 40%/75% reduction / Payments as annuity are fully taxable. Payments as annuity or lump sum possible.. Payments as annuity or lump sum possible United Kingdom EET Pension schemes after 5 April 2006: registered p.s.. unregistered p.s. Contributions limited to 100% income attract tax relief at individual s marginal rate; costs of premium are deductible expense of employer; tax relief at source of 22% for contributions up to 3,500 even where individual is a nontaxpayer... ne; but contributions are also no longer taxed as income of the scheme member Pension saving not accessible until retirement age: minimum retirement age is 55 25% of value of pension allowed to be taken as a tax free lump sum Thereafter ongoing annual payments taxed as income Lump sum death benefit payable after 5/4/06 and established pre 5/4/06 protected from tax if employer contributions have already been taxed on the scheme member

8 Private Life insurance: Treatment with regard to income tax / 3 rd pillar (status 2007) (Rev 11/07) Deductibility of premiums Taxation of benefit Country Deduction Minimum period (years) Comments Lump sum Annuity Austria, for capital insurance, for annuity insurance Restrictions regarding amount.. exempt from tax liable to tax liable to tax, single premiums and if duration < 10 years..., single premiums and if the duration in case of surrender < 10 years..., if benefit exceeds the cash value of the annuity... Belgium Cyprus Denmark Statebacked pension provision: ; state support in the form of premium (% and max. amount variable), tax relief at a special rate. Min. up to statutory retirement age and duration 10 years. 10 or to retirement age of 60 Restriction regarding type and amount: Restriction regarding amount.. yes, when duration effective > 8 yrs. Restrictions regarding amount, because, tax deduction at source by the life insurer ( tax rate and moment of deduction?) 10 Annuity: unlimited Lump sum: limited up to DKK, Difference between amount paid in and amount paid out is taxed at 25% and the half of the state premium is to be pay back, if the premiums entitle for the tax relief (without bonus sharing); otherwise with the interest included in the benefits (without bonus sharing), (if the premiums exceed the limit, the benefits are taxed as private annuities (taxable once the benefit exceeds the cash value of the annuity), same as for lump sum, in line with an agedependent percentage, if premiums are not deductible, if premiums are deductible, to the full extent, since premiums are fully deductible France, for life insurance general.., for pension contracts, but only for contracts taken out by or for disabled persons.. Only annuity payments possible; no Restrictions regarding amount, option for surrender or maturity on depending on the kind of the retirement age contract (about salary / nonsalary / open to all), the returns from certain unitlinked contracts with a term > 8 years; benefit in the event of death, difference between lump sum reimbursed and premiums paid in. Taxation in dependence on term of the contract (e.g. 8 yrs. 7.5 %) or integration into income tax, in line with an agedependent percentage.., full, but there is a reduction of 10% and 20% Germany, with state allowance, to basic pension schemes... Annuity begins at a minimum of 60 years... Certified products Only annuity benefits; amount is limited, in the event of death..., with the difference between the lump sum and the premiums, in line with an agedependent percentage, to the full extent, full with a personal allowance

9 (Rev 11/07) Deductibility of premiums Taxation of benefit Country Deduction Minimum period (years) Comments Lump sum Annuity Greece, for life insurance in general including annuities, endowment 3 years Up to from family income (per couple) As for unitlinked products (single premiums), 20%of paid premiums max deducted from income (rule for ), if policyholder and beneficiary not differentiated., if the beneficiary is other than the policyholder. Taxation under the provisions of Inheritance and Donation Tax Code., if policyholder and beneficiary not differentiated., if the beneficiary is other than the policyholder. Taxation under the provisions of Inheritance and Donation Tax Code. Hungary 10 (up to retirement age for people >52 ) Ireland 20%, max. 400 deducted from the income tax, 23% withholding tax of the gain in time of payment, 23% withholding tax of the gain in time of payment Italy, endowment insurance, unit/index linked, death and disability contracts 19% up to premiums of 1291 deducted from income tax, in the event of death, 12.5% substitute tax on the difference between capital and premiums paid,12,5% substitute tax from the interest elements into the annuities and if the annuities are deferred annual from the accrued income into the contract 5, annuity insurance with provident purpose, individual pension schemes Deduction from the income up to 5165 Annuities at the retirement age; 50% lump sum is possible, the lump sum respective the deducted premiums;flat rate taxation of 15% relating to the payouts as from 1/1/2007 onwards. A 0.3% extra relief is allowed for each membership year exceeding the 15.th, until a 6% reduction is reached (the 15% rate falls to 9% after 35 years participation to the pension scheme), annuities respective the deducted premiums and with a 12.5% substitute tax from the interest elements into the annuities; flat rate taxation of 15% relating to the payouts as from 1/1/2007 onwards. A 0.3% extra relief is allowed for each membership year exceeding the 15.th, until a 6% reduction is reached (the 15% rate falls to 9% after 35 years participation to the pension scheme) Transitional rules apply Transitional rules apply 11,0% annual from the accrued income into the contract 11,0% annual from the accrued income into the contract

10 (Rev 11/07) Country Deductibility of premiums Taxation of benefit Deduction Minimum period (years) Comments Lump sum Annuity exempt from tax liable to tax liable to tax Luxembourg 10 Restrictions regarding amount: general with 672 ; depending on age from up to 3.200, for a buyback before 10 years or age < 60 years or if the premiums are deducted, half Netherlands, endowment insurance, annuity insurance Deductible up to 25,033; dependent from the first and second pillar, the payment, the accrued value is yearly taxed with 1,2 %, if the premiums were deducted or in the other case, the value of annuities is yearly taxed with 1,2 %. rway, unit linked insurance, endowment insurance, annuity insurance, Individual Pension Contract Retirement age (minimum 64 years), with the difference between the lump sum and the premiums paid, annuities taxed as pension income Portugal (25% of the applied sums). PPR / PPR/E: 20% of the amounts invested each year After the age of 55 and 5 annual payments of the insurance Only for contracts covering risk of death, disability or retirement: 25% of the premiums deductible, limited to 59 EUR p.p , depending from insured s age, difference between insurance benefit and the premiums paid. Taxation in dependence of duration (e.g. 28 yrs. 8 % Sweden (endowment ins.). (annuity insurance and individual pension saving IPS). Certain restrictions applies, i.a. age of retirement 55 years. (lump sum not allowed). Switzerland Restrictions regarding amount, when periodical contributions, for endowment insurance with single premiums, if duration < 5 years and age < 60 years, generally 40% of the annuity

11 (Rev 11/07) Country Deductibility of premiums Taxation of benefit Deduction Minimum period (years) Comments Lump sum Annuity exempt from tax liable to tax liable to tax Spain for guaranteed pension plans PPA (from 2003)... Payments not possible prior to retirement, with the exception of grave illness or longduration unemployment / Payments as annuity (less common) or lump sum (more common) possible... Agedependent deduction of 8,000 ( 52 yrs) up to max. 24,250 ( 65 yrs) p.a , difference between capital received and premiums paid, but with termdependent deductions of up to 75% of the investment income......, but reduction of 40% is granted if 2 years have passed since the first contribution, to the full extent, with agedependent calculation of the yield, to the full extent United Kingdom As with 2nd Pillar Pension As with 2nd Pillar Pension As with 2 nd pillar pension As with 2 nd pillar pensions As with 2 nd pillar pensions As with 2 nd pillar pensions Premiums into a registered pension scheme attract tax relief at marginal rates subject to limits Premiums paid into Pension saving are not accessible until minimum retirement age (55 years) Tax relief on premiums is limited to value of premiums being 100% or less of annual taxable income or 3,200 which ever is higher. Lump sum of up to 25% of the value of the individual s pension scheme fund at retirement age can be taken as a lump sum tax free Lump sum paid over 25% of value is subject to a tax charge, annual benefits paid are taxed at the individual s marginal income tax rate Premiums into general life investment or annuity products not part of the registered pension scheme, no relief