Occupational pension schemes in Belgium

Occupational pension schemes

What are the main types of private pensions and retirement plans that are provided to a broad base of employees?

Occupational pension plans can be defined benefit, cash balance or defined contribution. In recent years, many defined benefit plans have been closed to future participation, since employers prefer the financing predictability of defined contribution schemes.

Occupational pension plans can be established by employers at the company level. There are also industry-wide schemes in certain industry sectors, which are set up by the employers’ organisations and trade unions in those industries. Industry-wide schemes often include opt-outs allowing employers to establish their own scheme, provided it is at least equivalent to the industry scheme.

What restrictions or prohibitions limit an employer’s ability to exclude certain employees from participation in broad-based retirement plans?

Belgium has very strict anti-discrimination laws applying to membership conditions and all other features of occupational pension plans. Every distinction made in an occupational pension plan must be objective, reasonable and proportionate.

In practice, many occupational pension plans still make distinctions between blue-collar, white-collar, and management plans. The Law of 5 May 2014 gradually eliminates distinctions between blue- and white-collar employees. Such distinctions will be prohibited as of 2025, with a standstill obligation as of 2015. Some employers make distinctions based on internal job classification systems or scales, which continue to be permissible.

When plans are changed, employers will often grant employees in service the choice between keeping their current plan or joining the new plan, which will apply to all new hires after the plan introduction date. Similarly, in the context of mergers and acquisitions, the employer will often grant the employees of the acquired company the choice to stay in their (more favourable) plan or to join the plan of the acquirer.

Employees must be immediately affiliated upon hiring and remain affiliated to the plan as long as they remain in the employer’s service, until they retire.

Part-time workers are entitled to pro rata participation in plans.

Can plans require employees to work for a specified period to participate in the plan or become vested in benefits they have accrued?

There are no waiting periods for membership to a plan. Employees immediately become members of the plan upon entry into service, if they have reached the minimum age of 25. Employees under 25 are often affiliated to the plan for death-in-service benefits, with pension accruals starting only at 25.

While previously a vesting period of maximum one year was permitted if explicitly provided in the plan document, as of 1 January 2019, as a result of the implementation in Belgium of the EU Pension Portability Directive 2014/50, vesting must be immediate.

What are the considerations regarding employees working permanently and temporarily overseas? Are they eligible to join or remain in a plan regulated in your jurisdiction?

The answer to this question depends on how the membership conditions of a plan are drafted. In practice, employees will often remain in the plan when they are temporarily seconded abroad with continued affiliation to the Belgian social security system. Employees who permanently transfer abroad are normally no longer covered. Contributions made for these employees remain tax-deductible in Belgium only if they remain on the Belgian payroll.

Do employer and employees share in the financing of the benefits and are the benefits funded in a trust or other secure vehicle?

Occupational pension plans can, but need not, provide for employee contributions. Employee contributions are financed out of the employee’s net salary and give rise to a tax reduction, but the tax and social security treatments of these contributions is not nearly as favourable as that of employer contributions (see question 3). Having employee contributions can result in increased mandatory worker participation, including a requirement to conclude and change the plan by collective labour agreement or work regulation, as well as joint labour management of the pension fund.

Benefits cannot be financed solely on the employer’s books. The law imposes mandatory externalisation, meaning plans must be funded through an insurance company or a pension fund.

What rules apply to the level at which benefits are funded and what is the process for an employer to determine how much to fund a defined benefit pension plan annually?

Defined benefit plans must be funded in accordance with a financing plan, which must provide for financing at all times of the vested reserves, with an additional buffer on top.

For defined contribution plans, the current law on occupational pensions provides for a mandatory minimum return guarantee on contributions, which, since 1 January 2016, is equal to 1.75 per cent (coming down from 3.25 per cent in 2015). The guarantee is borne by the employer and measured at the time of transfer of the capital (after exit) or retirement. The minimum guarantee rate has been the subject of heavy debate in the current low-yield market. Even though it was lowered to 1.75 per cent in 2015, insurance companies currently do not offer a 1.75 per cent guarantee on insured plans, resulting in potential deficits to be borne by employers.

What are customary levels of benefits provided to employees participating in private plans?

There are no legal standards regarding contribution levels, so benefits can, therefore, differ significantly. Executive plans can be significantly more generous than broad-based plans. Many pension formulas (both in defined benefit and defined contribution) are step-rate (ie, they will make a distinction for the purpose of occupational pension accrual between a salary below and above the state pensionable salary ceiling - currently €55,657.47). The part below the ceiling will yield less occupational pension, as it only complements the state pension; the part above the ceiling yields more, as there is no state pension accrual. Industry sector plans typically have defined contribution formulas with comparatively low (sometimes extremely low) contribution levels.

Are there statutory provisions for the increase of pensions in payment and the revaluation of deferred pensions?

Belgium has a tradition of paying occupational pensions in lump sums upon retirement, which is partially due to the favourable tax treatment of lump sums (see question 3).

Payment in annuities is exceptional. Where payments are made in annuities, the rules on increase or escalation are provided in the plan. There are no statutory requirements regarding these rules.

Similarly, the rules on revaluation of deferred pensions must be provided in the plan. The law on occupational pensions only provides that deferred pensions cannot be reduced.

What pre-retirement death benefits are customarily provided to employees’ beneficiaries and are there any mandatory rules with respect to death benefits?

Different formulas are possible for death benefits in occupational pension plans, ranging from payment of the accrued vested reserves to no payment, or payment of the equivalent of a specified number of years’ salary.

There is also a possibility to organise a cafeteria system with a choice of death coverage (eg, zero, one or two years’ salary), and a fallback coverage where no choice is made (eg, one year’s salary is the default).

Since 1 January 2016, the law obliges employers to offer deferred members the option of death coverage on their vested reserves, at members’ expense.

When can employees retire and receive their full plan benefits? How does early retirement affect benefit calculations?

The earliest employees can receive the benefit of an occupational pension plan is the time of retirement, that is, when they start receiving statutory pension benefits, normally at the age of 65 (see question 4). This principle was laid down in the Law of 18 December 2015 and is subject to transitional measures allowing payment of occupational pensions prior to statutory retirement between the ages of 60 and 65 (depending on the plan member’s age in 2016).

The normal rule is that upon early retirement in defined benefit plans, benefits are discounted by the applicable interest rate and mortality tables to calculate vested reserves. Some defined benefit plans have favourable early retirement calculation provisions, such as a flat-rate discount or no discount at all between 60 and 65. These favourable early retirement mechanisms were, however, prohibited and annulled by the same Law of 18 December 2015 (subject to transitional measures for employees aged 55 and older). In defined contribution plans, early retirees will simply receive the amounts credited to their individual account.

Are plans permitted to allow distributions or loans of all or some of the plan benefits to members that are still employed?

No payment is possible before retirement. The law allows advances for the purpose of the acquisition or securitisation of mortgage loans for real estate in the European Union, to the extent that this is expressly permitted in a plan’s rules.

Is the sufficiency of retirement benefits affected greatly if employees change employer while they are accruing benefits?

Defined contribution benefits are not affected by a change of employer, as employees remain entitled to the amount credited to their individual account. In defined benefit plans, there are bound to be pension losses in connection with a change of employer, if employees decide to transfer their vested rights, as future salary increases will no longer be taken into account and vested rights can be calculated with a discount rate, depending on the plan, of up to 6 per cent.

In what circumstances may members transfer their benefits to another pension scheme?

Upon leaving the employer’s service, employees have a choice to keep the reserves in the old employer’s plan (with or without death coverage), transfer the reserves out of the plan to the new employer’s plan or an authorised individual pension arrangement, or leave their reserves in a special insured ‘welcome structure’, where they have a choice of the related death benefit. Employees who leave their reserves in the plan can still transfer them out at a later date. Individual transfers are not possible as long as the employee remains in service.

Who is responsible for the investment of plan funds and the sufficiency of investment returns?

Investment of plan funds is the responsibility of the insurer or the pension fund. However, the ultimate liability for the sufficiency of the returns lies with the employer. In a defined benefit plan, the employer is liable for the benefit as provided in the plan rules; in defined contribution plans, the employer is liable for the statutory minimum return guarantee of 1.75 per cent. (See question 13.)

Can plan benefits be enhanced for certain groups of employees in connection with a voluntary or involuntary reduction in workforce programme?

Enhanced benefits in connection with reduction in workforce programmes will raise tax and discrimination issues. In practice, it used to be the case that employees who were forced to leave a company early, before early retirement age, would receive credit in the pension plan for the missed future service years until the normal retirement age. These benefits have, however, been prohibited and annulled by the Law of 18 December 2015. They remain permissible for employees who were 55 or older on 31 December 2016.

Are non-broad-based (eg, executive-only) plans permitted and what types of benefits do they typically provide?

Such plans are permitted (see question 9). They can either be top-hat plans providing for additional benefits on top of broad-based plans applicable to all employees, or separate plans for executives who do not participate in the broad-based plans.

How do the legal requirements for non-broad-based plans differ from the requirements that apply to broad-based plans?

The same legal requirements, and tax and social security regime, apply.

How do retirement benefits provided to employees in a trade union differ from those provided to non-unionised employees?

Employers cannot discriminate in occupational pension plans (see question 9), so it is not possible to offer different benefits to trade union members. There can be trade union involvement in broad-based plans, in particular where the plans provide for employee contributions (see question 26).

How do the legal requirements for trade-union-sponsored arrangements differ from the requirements that apply to other broad-based arrangements?

Where a plan covers all employees and provides for employee contributions, if the company has a works council or other employee representation body, the plan must be laid down in a collective bargaining agreement concluded with the trade unions. The legal requirements for such plans do not differ from those for plans established unilaterally by employers. Where trade unions have a say, one can expect more employee-friendly provisions in the plan.