The returns on supplementary pensions have been a very hot topic during the past few months. In addition, these have been cloaked in technical terms such as the minimum guaranteed return, the WAP guarantee and the maximum benchmark interest rate. But what exactly do these terms mean and what is the difference?
The minimum guaranteed return and the WAP guarantee are synonyms. It is the minimum return you have to guarantee on employer’s and employee’s contributions to the supplementary pension scheme by virtue of the Supplementary Pensions Act (“WAP”). Up to 1 January 2016, this guaranteed return was 3.25% on payments by the employer and 3.75% on payments by the employee. Since 1 January 2016, the minimum guaranteed return or WAP guarantee has been lowered to 1.75% for both employer’s and employee’s payments. More information about the changes to the WAP guarantee can be found in our February newsletter.
The maximum benchmark interest rate is the maximum return an insurer can legally guarantee on the contributions paid into a Branch 21 insurance. In principle, the Belgian National Bank stipulates the interest rate, but the Minister of Economy can change it under certain conditions. On 22 December 2015, the Belgian National Bank decided to lower the maximum benchmark interest rate for long-term life insurance activities to 1.5%. The Minister of Economy ignored this decision for social reasons and stipulated a new maximum benchmark interest rate of 2.0% by a ministerial decree of 20 January 2016. This interest rate has applied since 13 February 2016 (after all, the decree was announced in the Belgian Official Journal of 3 February 2016). In practice, insurers in Branch 21 currently offer employers a guaranteed return of around 1.0%, supplemented with profit sharing, if appropriate.
Summarising, it means that, with effect from 1 January 2016, you have to guarantee at least 1.75% on contributions paid for Branch 21 group insurance contracts (= minimum guaranteed return or WAP guarantee). Since 13 February 2016, insurers can guarantee a maximum of 2.0% on contributions paid (= maximum benchmark interest rate), but in practice they only guarantee about 1.0%. So even after the WAP guarantee having been lowered for the employer, the guaranteed return of the insurer is (still) not enough to fully cover your return obligation. This means you may have to finance any deficit yourself, unless the insurer grants sufficient profit-sharing on your contract.