Interested to increase your pension with an extra pension plan when you will be retired? The fundamentals of the system in Belgium consists of 4 different pillars. This article provides useful information to employers, employees and self-employed persons seeking information about pension plans in Belgium.
First Pillar: Statutory Pension
Every Belgian who works is entitled to get a statutory pension from the Belgian government. The amount of the statutory pension is calculated according the number of years worked, the professional income and the status of the worker (employed, self-employed or civil servant).
A guaranteed minimum retirement money has been determined for a full career. However, since most people in Belgium don’t work the full 45 years, the actual average retirement age is lower. Very often the statutory retirement money is not sufficient to guarantee your standard of living at retirement age. For this reason it is recommended to use the other pension pillars to ensure your standard of living.
Belgians can check the career data used to calculate the statutory retirement money on the official website Mypension.be.
It is not surprising that the funding of retirement money is a growing concern for the government. For this reason there are several alternatives for employers, employees and self-employed workers to be found in the other pillars. Everybody can start a plan.
Second Pillar: Supplementary or Extra-Legal Pension (Group Insurance)
For employees in the private sector, it is very common, but under no obligation, that employers are offering a group insurance scheme (also called pension plan, pension scheme or pension fund). Both employer and employee can make a group insurance contribution. The premium is defined by a benchmark or can be tailor made. There is also the possibility to offer a cafeteria plan version of a group insurance. This gives your employees more freedom to choose the formula that fits best with their life phase, within the options the employer determines. For employees, a group insurance can be more advantageous than a wage increase.
In Belgium, we have different types of employer’s group insurance plan (also called pension plan, pension scheme or pension fund) with three kinds of commitments:
- Defined Benefits Plan: The employer commits to pay a certain benefit on the end date of the contract, expressed as capital or an annuity. This type is existing but not used anymore for new plans.
- Defined Contribution Plan: The employer commits to the payment of certain contributions or premiums periodically defined in advance in order to finance the supplementary pension. These days, this is most frequently selected group insurance.
- Cash Balance Plan: The employer promises a benefit that is composed of the allocation of amounts periodically defined in advance plus a return established in the retirement money regulations. Only large companies are using this type of plan.
Self-employed workers can contribute to a supplementary plan with significant tax advantages. This plan allows self-employed persons to build up a capital sum to top-up their statutory retirement money. The premiums that can be paid are limited and are depending upon the income.
Third Pillar: Individual Pension Savings Plan
Via the third pillar, an individual pension savings plan allows everybody to top-up your future retirement money on your own initiative. There is a tax advantage between 25% and 30% (excluding municipal tax), depending from the type of pension savings plan. The amounts are adjusted every year. This type of plan is very popular in Belgium. Below the amount valid for 2022:
- Save up to € 990 in 2022, and get a fiscal cashback of € 297
- Save up to € 1 270 in 2022, and get a fiscal cashback of € 317,50
For those who paid off their home loan, it is possible to build up a long-term savings plan on top of the individual pension savings plan. Depending on your income, your tax advantage is up to 30% of the amount saved via your personal income tax. Reduce your taxes, not your pension!
Fourth Pillar: Voluntary Personal Savings
The fourth pillar comprises voluntary personal savings without tax advantages such as savings and term accounts, government bonds, investments in shares or bonds and investment funds. Owning your home is another important element in the fourth pillar. This is one of the reasons why 72% of households in Flanders (in 2018) owned the home they live in.
Conclusion: Start your Pension Plan in Belgium
Life goes on after your retirement, and smart people plan their retirement income.
If you need any assistance or advice about pension plans, supplementary plans, group insurance, extra-legal pension savings or individual pension savings plans, you can directly contact Marleen Van den Eynde, an independent Employee Benefits Specialist at Life Investment. She will guide you through the different regulations in Belgium.