Why you should pay in the maximum amount to your pension savings in January

It doesn't matter when you make payments into your pension savings to get the tax break. But it does matter in terms of the overall return. January appears to be the best month.

Around three million Belgians are saving for a pension (source). And that's a smart move, as the statutory pension won't be enough for most people. What's more, saving for your pension allows you to save on your taxes.

Saving for a pension has more in common with investments than savings. The money you pay in doesn't just sit in a savings account, as the bank or insurance company with whom you enter into a contract invests your money.

The amount you can pay in to pension savings on an annual basis is limited. The following maximum amounts apply for 2026:

• You deposit up to €1,050 and receive a tax break of 30% on the amount in question (up to €315).
• Alternatively, you can deposit up to €1,350 and benefit from a 25% tax break, meaning you can save up to €337.50 in tax.

The moment when you make your deposit (whether it is in January, February, March and so on) does not affect the tax break in any way whatsoever, which stays at 25% or 30% of the deposited amount. The timing, however, does make a difference to your total return.

Different formulas

You can save for your pension in three different ways – pension savings insurance, a pension savings fund or a combination of the two.

1. Pension savings insurance: guaranteed return from day one

Pension savings insurance (also known as Branch 21) offers a guaranteed return. Such a return can be supplemented by profit-sharing if the insurer manages to invest your deposits and make a profit. Just like with a savings account, interest starts to accrue as soon as you make the deposit. Those who opt for pension savings insurance are choosing certainty. On the other hand, certainty also comes with a lower potential return.

The earlier in the year you make a deposit, the more capital you build up thanks to the principle of compound interest: you earn interest on your deposit, and subsequently earn interest on the interest. January is the perfect month to make deposits for anyone holding pension savings insurance.

2. Pension savings fund: make deposits at its lowest point?

Pension savings funds offered by a bank or a Branch 23 fund offered by an insurer do not provide a guaranteed return. These products invest in shares and bonds, meaning that the return is based on movements on the stock markets. The return has a higher potential than that offered by pension savings insurance.

In theory, the best idea is to make deposits during the year when the stock market is at its lowest point. However, no-one can predict when that will be. Nevertheless, January also seems to be the best option from a historical perspective. In the past, the stock markets have usually ended the year higher than they started. Since 1988, for example, the MSCI World Index (USD) has ended the year in the green twenty-eight times and in the red eight times (source 1 and source 2).

As a result, making your deposits in January means you give your money as much time as possible to grow in line with positive market trends. Remember, however, that the stock markets aren't always at their lowest point of the year in January, but they are often lower than later periods in the year.

In 2020, De Tijd examined the returns of eight pension savings funds over a period of thirty-one years (December 1988 to December 2019). Such funds invest not only in shares, but also in bonds. In twenty-two of the thirty-one years, prices were higher at the end of December than they were at the beginning of January (source). Anyone who made deposits in January each year built up a pension savings pot over the year as a whole that was 6.8% higher than deposits made in December. Those making monthly deposits returned a performance that was 9.2% worse than those making deposits in January.

Recent research confirmed that pension savings funds closed the year in December higher than at the beginning of January in 75% of cases over the past thirty-five years (source). To sum up, deposit funds straight away in January for the highest potential returns. However, you should remember that the above figures are only an indicator and are not a guarantee of future returns.

3. Branch 44 products

A Branch 44 product combines Branch 21 and Branch 23 products – pension savings insurance and a pension savings fund. Here, too, the preferred option is to make a deposit in January. For the Branch 21 component, interest starts to accrue straight away, while you historically benefit from more trading days with upside potential for the Branch 23 component.

Over 70% of pension savers spread their deposits over the year and around 20% make them only in December (source). No matter which formula you choose, the best option seems to be January. Finally, whether you choose to make deposits in January, December or on a monthly basis, your deposit must be in the account before 31 December in order to be eligible for the tax break for that year. Deposits made on 2 January will only count towards the following tax year.

Tax-friendly pension savings?

Open the Keytrade Bank app and tap Save for your pension in the Discover tab