In brief: our pension system consists of three pillars: the statutory pension (what you receive from the state), the supplementary pension (what you save through your employer) and your own savings bank (what you save through individual pension savings). That the aging of the population will make statutory pensions almost unaffordable in the long term, has already been said over time. That is why the government would like to see as many Belgians as possible create a pension savings bank themselves, through their employer or by doing pension savings.
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The new federal government will also come back to this in its coalition agreement. More than that, she wants to take a closer look at the costs charged in the second and third pillars, and adjust them if necessary, so that you have more left over from your retirement savings box. According to the coalition agreement, it must be possible to boost the return on the supplementary pension through administrative and logistical simplification. Consideration is being given to more automation and ‘cost reduction in the administrative management and handling of supplementary pensions’. Below we outline not only the costs, but also the taxes, which are charged for both the second pillar (we limit ourselves to group insurance) and for individual pension savings.
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Despite all costs and taxes, a supplementary pension plan is an optimal form of alternative remuneration.
Marc Van kerckhoven
Vanbreda Risk & Benefits
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Group insurance
The supplementary pension through the employer is fully established. Some 2.5 million employees receive a supplementary pension through the company where they work.
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In some cases, both employers and employees pay a contribution for the group insurance. “But since the Supplementary Pension Act in 2004, new contracts almost never include employee contributions,” said Benoit Halbart, AG’s marketing director for employee benefits.
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The employer is not allowed to manage the pooled funds themselves, so that the employee is not left empty-handed if the company ever goes bankrupt. Companies are legally obliged to deposit their money with a ‘pension institution’ that specializes in the management of financial resources. Obviously, costs are associated with this external management. These are charged to the employer and not to the employee, but they can, to a greater or lesser extent, draw on the pension capital that the employee accrues.
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The law on supplementary pensions (WAP) lays down a number of rules. The employer must guarantee a return of 1.75 percent. Costs may be taken into account for employer contributions. These may not exceed 5 percent of the premiums. The return must be calculated on at least 95 percent of the premium paid. If the costs are higher, the employer must make an additional contribution. He must guarantee a return of 1.75 percent on any contributions from the employee without deduction of costs.
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For example, if the employer has to charge 5 percent costs on his contributions, a premium of 100 euros a year later must be at least 96.66 euros (95 + 1.75% of 95). That is the lowest amount that must be guaranteed. If the employer has an agreement with a pension institution for which the costs are 6 percent, after one year, 95.64 euros (94 + 1.75% of 94) remains of 100 euros. In that case, the employer must pay 1 euro for every 100 euros that was invested.
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The employee is not responsible for the costs of the group insurance, but they do determine the amount that the employee is left with. For example, if the costs are 3 percent, a premium of 100 euros a year later equates to an amount of 98.69 euros (97 + 1.75% of 97).
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“In most cases, the employer will find a solution that costs less than 5 percent,” says Marc Van kerckhoven of insurance broker Vanbreda Risk & Benefits. ‘But it is a challenge today to find a solution that guarantees a 1.75 percent return. That is why some employers are looking for solutions in Branch 23, which allow higher returns than with Branch 21 products, which guarantee a fixed return. In that case they do take an investment risk, because Tak23 follows the movements of the stock market. ‘
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The costs that are paid may differ depending on the contract that was entered into. The management costs are usually between 1 and 3 percent of the premium, depending on the complexity of the plans, the number of policyholders, the amount of the premium and the level of service a customer wants.
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An employer is not required to work with a broker. If he does that, he pays a maximum of about 2 percent. Sometimes a fee is agreed between the broker and the client. Then no commission is deducted from the premium, ‘says an expert from Belfius Insurance.
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‘The pricing is always transparent for the employer’, Halbart assures. ‘At first sight, this seems less the case, but he can request all information about his group insurance via the management report.’
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Belfius Insurance points out that the costs of group insurance in the Belgian market have been drastically reduced in recent years. ‘In the 1990s, costs were almost standard about 4 percent. In most cases, this has now been halved, ‘says an expert. ‘While the legal framework leads to very complex management and the financial margins that can be collected on the investments have disappeared.’
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‘We are convinced that we are asking the right price with the current way of working,’ says Halbart. ‘The fierce competition in the market also plays a role. A reduction in the rates mainly depends on the extent to which we can digitize and automate procedures. According to the coalition agreement, the government wants to assist insurers in this. That needs to be investigated, but will not produce results in the very short term. ‘
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Usually the group insurance is paid out as a one-time capital. The tax differs according to whether the capital was accrued with contributions from the employer or with contributions from the employee.
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The tax rate on the part of the capital that is accrued with employer contributions depends on the time of the payment. The older you are at the time of payment, the lower the tax due:
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From the age of 60: 20 percent.
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From the age of 61: 18 percent.
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From 62 to 64 years of age, upon legal retirement or death: 16.5 percent.
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From age 65: 10 percent. The condition is that you have worked effectively until your 65th birthday and that the pension capital is paid from that age at the earliest. If this is not met, the rate is 16.5 percent.
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The part of the capital that comes from employee contributions and that was paid after 1993 is taxed at 10 percent (plus municipal tax) for a benefit from the age of 60. The other deposits are taxed at 16.5 percent (plus city tax).
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Keep in mind that on top of the taxes, you also pay an INAMI contribution of 3.55 percent and a solidarity contribution of 2 percent.
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‘Despite all the costs and taxes, a supplementary pension plan is one of the most optimal forms of alternative remuneration,’ says Van kerckhoven. ‘As an employer, you can offer your employees a higher net benefit with the same budget. You notice this when you compare the net benefit of a salary increase of 1,000 euros with the same premium for a group insurance policy. With a pay increase, the employee only receives 32 percent of the total wage cost net, while with a group insurance that is almost 73 percent. ‘
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Individual pension savings
You can save individual pension in various ways. You can take out pension insurance or you can invest in a pension savings fund. The first option offers a fixed return, and therefore more security. The second carries more risk, but generally offers a higher return in the long run. In both cases you have to factor in costs.
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The entry costs for insurance (usually 4 to 6 percent) are clearly higher than those for a fund (0 to 3%). But it is of course up to you to negotiate a lower rate with your insurer. On the other hand, the annual management and other costs of a fund (1.2 to 1.6%) are usually much higher than those of insurance of the branch21 type.
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It usually costs you money if you leave a fund early because you want to place your savings with a fund of the competition. Many financial institutions charge transfer costs. The good news is that the financial institution you go to does not charge an entry fee.
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If you participate in individual pension savings, you can get a tax benefit from it. You can choose between two options. Either you deposit a maximum of 990 euros per year against a tax benefit of 30 percent, or you put up to 1,270 euros in your pension savings against a tax benefit of 25 percent.
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The downside of that tax benefit is that you have to pay a final tax when withdrawing your savings.
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The capital that you save in this way is taxed. If you entered into your contract before the age of 55, you pay an 8 percent tax on your long-term savings at the age of 60. If you did not enter into a contract until later, the tax follows the tenth year of the contract. This is automatically withheld by your bank or insurer.
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If you have never received a tax credit for retirement savings, no final tax will be levied on your retirement savings. To do this, you must request a document from your tax office and submit it to your financial institution.
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