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An Van Damme analyses Belgium's attempt to raise the age of retirement through incentives rather than legislative decree

Belgium has joined other European countries in proposing pension reform, with a view to encouraging people to remain at work and companies to employing them.

The reforms tackle the state pension, early retirement through the so-called ‘bridge pension', and occupational pensions.

What is the starting point?
The state pension is a pay-as-you-go system, with a normal retirement age of 65 for both men and women. Before the introduction of the pension reforms (by the Act of 28 December 2011), early retirement was possible at the age of 60, provided the worker could prove that they have maintained employment for at least 35 years. Notwithstanding this early retirement age, the actual age at which workers leave the labour market is currently 58. This can be explained by the use of the bridge pension, an unemployment regime complemented by allowances at the cost to the employer. Workers whose employment contracts were terminated at the initiative of the employer, were, until 31 December 2011, entitled under a national collective bargaining agreement to complementary allowances, on top of the unemployment allowances, from the age of 60, provided they could prove a career of 30 years (for men) or 26 years (for women). These requirements were set to increase to 35 years, for men as from 1 January 2012, and for women gradually from 2012 to 2028, but this has been overruled by the reforms. Collective bargaining agreements concluded at company or industry level could lower the bridge pension age in a number of situations, such as in the event of so-called "heavy jobs", night work, long careers or companies restructuring. In the latter event, entry into the bridge pension could be permitted from 50.

Where do we go to now?
The Act of 28 December 2011 has already implemented several changes in the state pension regime and at the time of writing, the legislative work continues at a rapid pace.

The standard retirement age under the state pension system remains at 65. The government focuses on delaying the age at which people leave the labour market, which is still under 65, as opposed to increasing the age. Under the current pension reform, the early retirement age will gradually increase to 62 in 2016. Moreover, employees will have to prove a career of 40 years instead of 35. Those with careers longer than 40 years will be able to retire at 61, if they can prove a 41 year career, or at 60, if they can prove a career of 42 years.

Access to the "bridge pension" regime, which is now called "unemployment with an employer complement", has been restricted. In the future, this system will be open to dismissed employees on the basis of the national collective bargaining agreement, provided they have reached the age of 60 and can prove a career of 40 years (for men, as from 1 January 2015; for women, as from 1 January 2024 with a gradual increase in the transitional period).

However, for new collective bargaining agreements concluded at company or industry level, the age requirement has immediately been set at 60, and the career requirement at 40 years (both for men and women). Exceptions are allowed for long careers, "heavy jobs" or companies that are restructuring, however access to the system becomes more restrictive. Moreover, draft legislation intends to double the social security charges on the employer's complement making the system less attractive for an employer. As such, the government hopes to increase the actual age at which people leave the labour market.

The government realises that these measures need to be complemented by facilitating the continued employment of older workers. Draft legislation foresees an obligation for companies employing more than 20 workers to draft an annual "employment plan". This plan, which will have to be submitted for an opinion to the social bodies present in the company, or in the absence of social bodies, to the individual workers, should deal with the recruitment, development and conditions of workers older than 45. In the event of a collective dismissal, dismissals will have to be proportionally spread over the age groups. Companies will no longer be allowed to dismiss older workers in a collective dismissal.

The funded occupational pension regime will be reformed in order to encourage older workers to remain at work. If workers take their occupational pension benefit as a lump sum at the age of 60, the part accrued by employer's contributions will be taxed at a flat rate of 20%, where it is currently taxed at 16.5% (the part accrued by employee contributions is currently taxed at 10% and it is expected not to change). However, if they wait a few more years, provided they remain professionally active, the flat rate will go down to 18% (at age 61), 16.5% (at age 62 to 64) and 10% (at age 65). Through these tax incentives, the government hopes to encourage people to work longer.

Whether those measures will be successful in increasing the actual retirement age will have to be evaluated in the future. But an important step has been taken.

An Van Damme is a partner at law firm Claeys & Engels, a member of the Ius Laboris human resources law firm alliance

 

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