Impact of the increase of the statutory pension ceiling on your supplementary pension plan

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?

Impact of the increase of the statutory pension ceiling on your supplementary pension plan

The statutory pension ceiling of 2020 (EUR 60,026.75) will be increased gradually by 12.06% over four years and will, according to the Royal Decree, amount to:

  • EUR 62,684.50 in 2021;
  • EUR 64,176.39 in 2022;
  • EUR 65,705.90 in 2023;
  • EUR 67,266.74 in 2024.

These new wage ceilings do not yet take account of possible indexation on the basis of the trigger index, which means that in practice an increase of around 20% is expected.

For supplementary pensions, the statutory pension ceiling of the previous year is being used. In 2022, this means in particular that a wage ceiling of EUR 63,944.74 will be taken into account (this is the statutory pension ceiling of EUR 62,684.50 including index).

Advantages and disadvantages of the increase

The increase of the wage ceiling is obviously good news for those earning more than the previous wage ceiling of EUR 60,026.75. This is because these higher incomes will now accrue a statutory pension up to a higher wage ceiling. Nothing changes for wage earners with an income below the wage ceiling.

However, there is also a downside:

  • The increase of the wage ceiling does not mean that the statutory pension for higher-income workers will increase to the same degree. This increase applies only to future career years; the time already worked will not be adjusted.
  • The increase of the wage ceiling can lead to a decrease of the supplementary pension of your employees if your group insurance policy makes a link between the statutory pension ceiling and the accrual of the supplementary pension.

Defined contribution group insurance

In many group insurance policies, the premiums for the supplementary pension are calculated on the basis of the statutory wage ceiling. If your ‘defined contribution’ pension plan uses a so-called ‘step rate’ formula, the pension premiums are calculated in two brackets: a certain percentage of the annual salary up to the statutory wage ceiling (S1) and a higher percentage of the annual salary above that statutory wage ceiling (S2). When the wage ceiling increases, the salary portion above that ceiling becomes smaller and the pension premium (and therefore the supplementary pension capital) decreases. Accordingly, the increase of the wage ceiling has an impact on the supplementary pension of employees with an annual salary above EUR 60,026.75, as illustrated in the example below.

A fictitious example:

We take the example of an employee with a gross annual salary of EUR 80,000 , who will not get a salary increase in 2022. The group insurance formula is 3% S1 + 9% S2.

With the previous pension ceiling of EUR 60,026.75, an annual premium of EUR 3,598 was paid in 2021 into the supplementary pension plan (3% of EUR 60,026.75 and 9% of the salary portion above that (EUR 19,973.25)).

With the new pension ceiling of EUR 63,944.74, an annual premium of just EUR 3,363 will be paid in 2022 (3% of EUR 63,944.74 and 9% of the salary portion above that (EUR 16,055.26)).

The pension accrual for this employee will therefore decrease by around EUR 235 on an annual basis, and the supplementary pension capital will also be lower in the end.

(In this example, the indexation of the salary was not taken into account, which will somewhat weaken the effect on the supplementary pension.)

Defined benefit group insurance

Also in ‘defined benefit’ group insurance policies where the amount of the supplementary pension is determined according to the statutory pension, an increase of the wage ceiling will lead to a decrease of the supplementary pension capital. Accordingly, the increase of the wage ceiling has an impact on the supplementary pension of employees with an annual salary above EUR 60,026.75, as illustrated in the example below.

A fictitious example:

We take the example of an employee with a gross annual salary of EUR 80,000 , who will not get a salary increase in 2022. The group insurance formula is 200% S1 + 800% S2.

With the previous pension ceiling of EUR 60,026.75, a supplementary pension capital of EUR 279,840 was accumulated in 2021 (200% of EUR 60,026.75 and 800% of the salary portion above that (EUR 19,973.25)).

With the new pension ceiling of EUR 63.944,74, a supplementary pension capital of just EUR 256,332 will be accumulated in 2022 (200% of EUR 63,944.74 and 800% of the salary portion above that (EUR 16,055.26)).

The supplementary pension capital of this employee will therefore decrease by around EUR 23,500 at retirement age.

(In this example, the indexation of the salary was not taken into account, which will somewhat weaken the effect on the supplementary pension.)

We are there for you.

Does your group insurance policy make a link with the statutory pension and do you wish to avoid a reduction of the supplementary pension for your employees? If so, contact your Account Manager Employee Benefits at Vanbreda Risk & Benefits, or contact us at ebservices@vanbreda.be.

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