The interest on 10 year Belgian government bonds (so-called Linear Bonds or OLOs) has been rising since the start of 2022 resulting in a return to positive interest rates. This also has a favourable impact on Branch 21 group insurance, where most insurers have recently substantially increased their interest rates. We provide an update on the current situation and explain the opportunities.
2023 Pension Reform: the Four Pillars
The 2023 pension agreement rests on four pillars. The first three pillars concern the statutory pension. The final pillar relates to the supplementary pension and is the only pillar that affects the employers/organisers who are responsible for payment of the Wijninckx contribution where this is applicable. Pending the final texts, we will already give the main outlines.
At the beginning of this summer, the Inner Cabinet reached an agreement on a pension reform that had first been approved in 2022, but had to be adjusted for budgetary reasons. In the view of the European Commission, the proposed 2022 pension package cost more than it gained. Belgium is now adjusting its plans in order to secure a first tranche from the promised post-Covid European recovery fund in the autumn of 2023. We will guide you along the four proposed pillars.
1. Civil service pensions
Civil service pensions will increase at a slower rate than is now the case. This is done by capping the equalisation*.
*The equalisation mechanism ensures that civil service pensions increase automatically - over and above the index - in line with the salaries of working civil servants on the basis of baskets. All pensions of one and the same basket increase automatically by a certain percentage after a two-year reference period. For instance, when civil service salaries increase by 3% during the reference period, the civil service pensions belonging to that same basket must also increase by 3%.
The equalisation is not abolished by this pension reform, but capped. From now on, the increase of civil service pensions - over and above the index adjustment - will be capped at 0.3% of the total civil service pension per year.
2. Minimum statutory pension
A retirement pension is based on a full career of 45 years worked. In a previous reform, the government decided to increase the minimum pension for employees and the self-employed with a full career in four stages to 1,500 euros net per month over the 2021-2024 period. This pension amount has since been reached as a result of index adjustments and cost-of-living increases. The fourth increase has therefore been abandoned.
In order to be entitled to a guaranteed minimum pension, you must prove at least a two-thirds career or 30 years worked. In the calculation of this 30-year period, periods worked and equivalent periods (e.g. sickness, unemployment, thematic leave) count as career years. Someone who had worked for 10 years and was unemployed for 20 years fulfilled the career length condition, whereas someone who had worked for 29 years did not.
Last summer it had already been decided to maintain the 30-year career length condition, and to add an employment condition of 20 years actually worked. A person whose career, for the purpose of determining his pension entitlement, includes 10 years actually worked and 20 equivalent years will no longer qualify for the guaranteed minimum pension.
In order to take into account the career differences between men and women, it was also decided this summer to treat certain equivalent periods such as maternity leave, paternity leave, temporary unemployment, thematic leave, etc. as periods actually worked. Periods of ordinary unemployment will not count for the employment condition of 20 years.
3. Pension bonus - a reward for working longer
The pension bonus is a benefit that is granted on top of the retirement pension if you continue working after the earliest possible retirement date.
The pension bonus, which was abolished in 2015, is to be reinstated and given a new look. As of 1 January 2024, a pension bonus will be granted to employees, self-employed and civil servants who work longer rather than take early retirement. In other words, the bonus is payable at the earliest from 2025 and will increase progressively. The longer you continue working, the higher the bonus. This bonus would amount to 22,645 euros if you work up to three years longer from the date on which early retirement is possible. For individuals with a long career, the pension bonus will be calculated somewhat differently.
This bonus will be paid out net, and the beneficiary will be able to choose whether to have this pension bonus paid out as an annuity or in one lump sum.
4. Wijninckx contribution doubled
Finally, the government decided to let the highest supplementary pensions make a higher contribution by doubling the Wijninckx contribution on supplementary pensions.The Wijninckx contribution is a special social security contribution which, besides the usual deductions from the premiums paid, is payable on very high supplementary pensions of employees and the self-employed. This contribution is only due if the total of the statutory and the supplementary pension, expressed in annuity terms, is higher than the maximum statutory civil service pension. Sigedis, the administrator of mypension.be, determines to what extent this limit is exceeded. It notifies the employer/organiser of the amount of the Wijninckx contribution and whether it is due.
This Wijninckx contribution currently amounts to 3% and will increase to 6% as from 2028.
Hopefully, this pension reform will meet the expectations of the European Commission, with emphasis on the following points:
- Making it more attractive to work longer by reinstating the pension bonus.
- Convergence of the different pension systems. By capping the equalisation of civil service pensions, civil service pensions will increase less rapidly.
- Lowering the cost of ageing and making the system more balanced (e.g. by including care duties in the employment condition for the minimum pension).
We will keep close track of the further codification of the pension reform. Do you have any questions? If so, get in touch with your trusted contact person at Vanbreda Risk & Benefits.
Introduced in 2012, the Wijninckx contribution is a special social security contribution that targets the creation of high supplementary pensions for employees and the self-employed. The definitive arrangements for the Wijninckx contribution have been in effect since the beginning of 2019, and are much more complex than in previous years.
As part of the pension reform, the federal government decided last year to increase the wage ceiling used for calculating the statutory pension. What does this mean specifically for your supplementary pension plan?
The government wants to offer the self-employed the chance to set up a full pension with supplementary pension schemes, such as an individual pension policy (EIP) and an optional supplementary pension for the self-employed (PLCI). The current statutory pension for the self-employed is often insufficient to maintain the same living standard after retirement.