Around 4 million employees contribute to a supplementary pension through their employer. Some do this through group insurance, and others through a pension fund. The Supplementary Pensions Law (WAP) requires employers to guarantee a minimum return on supplementary pension contributions for the duration of employees’ scheme membership. The return is calculated on 1 June every year and takes effect on 1 January of the following year. Since 2016, it has been 1.75%; on the basis of the latest calculations, it will rise to 2.50% on 1 January 2025.
The minimum return that the employer must guarantee is calculated on the basis of the average 10-year return on Belgian OLOs*. After a period of persistently low long-term interest rates, rates on OLOs are on the rise again, which means that the minimum return on supplementary pensions will also increase.
*OLO = government bond
The increase in the WAP guarantee also means that scheme members’ minimum capital at the time of their retirement or if they transfer their reserves after leaving the company will increase. The size of this increase depends on the pension scheme’s characteristics. For example, it will vary with the methodology that the scheme uses to calculate the minimum capital.
- For pension schemes that use the horizontal method, the new WAP guarantee will only apply to future contributions. Contributions paid before 1 January 2025 will therefore continue to accrue interest on the basis of the currently applicable WAP guarantee. In other words, the contributions you have paid as an employer between 2016 and 2024 will continue to accrue interest at 1.75% and not 2.50%. The horizontal method is often used with pension schemes managed by an insurance company in Branch 21.
- For pension schemes that use the vertical method, the new WAP guarantee will apply to both future contributions and those already paid in the past. This means that the employee’s entire reserves will accrue interest at 2.50% from 1 January 2025. The minimum capital therefore undergoes a larger increase in the case of schemes using the vertical method, which is generally used with pension schemes managed by an insurance company in Branch 23 and by pension funds.
The employer is responsible for the WAP guarantee and therefore guarantees the resulting minimum capital. If the insurer or pension fund fails to achieve the minimum guaranteed return, the difference must be made up by the employer.
It is unclear whether insurers will follow suit by bringing the guaranteed interest rates in Branch 21 into line with the new WAP guarantee. If your insurer offers an interest rate that is lower than the WAP guarantee, this will leave a shortfall that you will have to make up when your employee retires or leaves.
It therefore definitely makes sense to examine both the methodology used in the pension scheme and the current return on your group insurance. To limit or even avoid unpleasant surprises such as underfunding, it may be advisable to consider other possibilities such as switching to Branch 21 group insurance with a higher guaranteed return, Branch 23 group insurance or a pension fund.
If you would like to see which approach suits your situation best, contact your Employee Benefits Account Manager at Vanbreda Risk & Benefits.
