The section covers

• Rule
• Disbursement prior to the agreed date
• Regular disbursements
• Partial transfer

Rule

If the value of the balance in an account, as mentioned in Sections 10(1) and (2) of PAL, at the end of a year of taxation is reduced due to a partial disbursement from the plan or a partial transfer under Section 41 of PBL and if this value exceeds the increase after 1 January 1983, the calculated value of the account at the end of 1982 is reduced by an amount corresponding to the difference between the disbursement and the increase. See Section 10(5), Item 1 of PAL. See also section B.7.2, Plans with banks and credit institutions, capital pension funds etc., and B.7.3, Plans with life insurance companies and pension funds.

The provision also applies in connection with a partial disbursement to an account holder from the plans mentioned in Section 10(4). See Section 10(5), Item 2 of PAL. See also section B.7.5, Employees' Capital Pension Fund (LD).

Disbursement prior to the agreed date of a part of the balance in a pension savings account is considered partial termination of the savings plan. In this connection, the basis of taxation etc. is to be determined under Section 10(1) or (2) of PAL and Section 23 of PAL for the part that is disbursed. See section D.1.3.1, Final calcuation of the basis of taxation and the taxable part thereof as well as declaration and payment of PAL tax upon the termination of a pension plan.

For the remaining part of the savings plan, the basis of taxation and the reduction continue to be calculated at the end of the year of taxation.

In connection with regular disbursements from pension savings in accordance with the plan, the regular disbursement constitutes ordinary taxable income for the pension saver. For the remaining part of the pension plan, tax must still be paid under PAL at the end of the individual year of taxation.

For pension plans under which disbursements are being made, the basis of taxation must be determined separately for the individual accounts as disbursements are considered partial disbursements from the plan.

The consequence of the reduction which takes place under Section 10(5), Item 1 of PAL is that the reduction fraction cannot exceed one.

In connection with a partial transfer, the savings are deemed to have been transferred according to a LIFO principle, i.e. the increase in the savings after 1982 is considered as having been transferred first. As long as the savings at the end of the year of taxation are higher than the savings at the end of 1982, no transfer of exempt savings is carried out. If the transfer exceeds the increase after 1982, a part of the exempt savings is transferred. This appears from the comments on Section 10(5) of the bill L 10 of 28 November 2007.

Account balance 31 Dec. 2008                  400,000

Account balance 31 Dec. 1982                  100,000

Increase after 1 Jan. 1983                        300,000

If e.g. 340,000 is disbursed from the account, the disbursement exceeds the increase by 40,000, and the balance as per 31 December 1982 (100,000) is reduced by this 40,000.

The numerator of the reduction fraction will thus be 100,000 - 40,000 = 60,000, and the denominator will be 400,000 - 340,000 = 60,000. The reduction fraction will subsequently be one.