Pension System
The pension system in Belgium has three pillars. A pay-as-you-go financed public pension system exists alongside voluntary occupational and private pension schemes.
In order to cushion the budgetary challenges posed by the anticipated rapid aging of Belgian society between 2010 and 2030, the Belgian government established the 'Fund for population aging' (Fonds de vieillissement) in 2000. Pension costs are expected to account for 13.4% of GDP in 2050. The fund is financed by a combination of privatisation proceeds and, where possible, surpluses in the social security system as well as parts of the budget surpluses.
Belgium has a relatively small pension market dominated by insurance products.
Late 2011 strikes took place all over the country to protest pension proposed reforms by Belgium's new government which would see theeffective retirement age rise by raising the age at which workers can claim an early pension (currently the effective retirement age is averaging about 59 years).
The official retirement age is 65 years but is also set to be raised by 2 years in order to deal with an increasing pensions bill as a result of an ageing population.
The pension reform is part of the 2012 budget plan to reduce Belgium's public sector deficit to below the EU limit of 3% of gross domestic product in 2012 and to reassure worried investors that Belgium has its finances under control.
Public Pensions
In Belgium, the employed, self-employed and civil servants are compulsorily insured under a statutory pension scheme. Contributions amount to 7.5% for employees and 8.86% paid by the employer. Benefits are income-related, although the Belgian state grants a minimum income for elderly people.
The pension income depends on preceding earnings, current income level and marital status. The maximum pension benefit equals 60% of pensionable income (adjusted career average earnings) for singles and 75% for married individuals. There is also a means-tested 'minimum guaranteed income for elderly people' which can be obtained by every person older than 65 whose pension and other income is below a certain threshold. In order to qualify for a full pension the individual has to have a contribution record of 45 years at the age of 65 (this includes time on unemployment or disability benefits). Retirement benefits are indexed to changes in the consumer price index.
Occupational Pensions
Traditional defined benefit (DB) plans have been dominant in Belgium. However, defined contribution (DC) plans are becoming increasingly popular.
There are three types of occupational pension plans:
- company schemes
- industry-wide schemes, and
- individual pension promises.
These can be provided by a pension fund, a group pension insurance policy administered through a life insurance company, a collective pension savings account administered through a collective investment institution, or by an individual pension savings plan.
Industry-wide pensions schemes can be established as a result of collective bargaining between employer associations and the trade unions. Each industry can have just one pension scheme, e.g. a pension fund or insurance scheme, set up by the employer association and the trade union. Employers are obliged to join these schemes unless the collective agreement allows them to contract out. However, this is only possible if the employer offers a company scheme providing benefits equivalent to the level of the industry scheme. The collective agreement thus sets minimum standards for each sector, creating a highly competitive and professional pension market.
Accordingly, so-called social plans can be set up, either as an industry-wide pension scheme or as a pension plan of an individual company. Unlike other pension schemes, they have to offer benefits for risks such as death or disability but receive special tax advantages in exchange.
Since 2004, DC schemes have to provide a minimum guarantee (3.75% for employee contributions and 3.25% for employer contributions) that has to be achieved over the lifetime of the individual member.
Contribution rates to occupational pension plans are usually laid down in the plan rules. Most plans are predominantly employer financed with contribution rates usually ranging from 0.5% to 1% for employees with income below the social security ceiling and 4% to 5% for incomes above that ceiling. Benefits can be paid out as annuities or as lump sum payments.
Collective pension schemes are funded by either group insurance policies or pension funds.
Additional sources:
