Currently, the Belgian Work-Place Pensions Act (WAP/LPC) imposes a guaranteed return of 3.25% per annum on employer contributions (less expenses subject to a maximum of 5% and risk benefit costs) and of 3.75% on employee contributions, applicable to both defined contribution and cash balance plans.
In a previous Bit we informed you that the guaranteed return was under revision due to the decline in the interest rates offered by insurance companies. The social partners have now come to an agreement on the matter.
Going forward, the guaranteed minimum return will be variable. The minimum return will be determined at 65% of the average return on 10-year linear bonds (OLOs) evaluated over the course of 24 months. In 2018 and 2020, the benchmark of 65% may increase to 75% and 85%, depending on the positive advice of the supervisor.
Regardless of the outcome of the formula, however, a minimum of 1.75% and a maximum of 3.75% will apply.
For 2016 and 2017, it is assumed that the return will be set at 1.75%.
The OLO-linked return will apply to employer and employee contributions equally.
So what does this imply for contributions already paid into the pension plan? If the plan is a so-called “branch 21” contract, implying that the insurance company guarantees a certain contractual return, the new minimum return will only apply to contributions paid going forward, the old statutory return will continue to apply to reserves already accumulated.