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Belgian pension funds return 1.45% over first half as Brexit hits hard

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Belgian pension funds achieved a return of 1.45% on their investments in the first half of 2016, with the UK vote to leave the European Union having had a “very negative” impact on the financial markets, although they stabilised after, according to PensioPlus, Belgium’s occupational pension fund association.

The survey was of a representative sample of Belgian pension funds with €23.4bn in total assets under management, representing around 60% of second-pillar funds in Belgium; the results were presented late last week.

The 1.45% figure is the average weighted return.

Inflation was reportedly 1.69% for the first half of the year, which lead to a loss of 0.23% in real terms.

Philippe Neyt, president at PensioPlus, told IPE the rate of inflation was exceptionally high and “one of the highest in Europe”.

He explained that the high rate was propelled by a jump in value-added tax on electricity from 6% to 21%.

Inflation is expected to fall, to between 1.87% and 2.2%, depending on the source.

PensioPlus noted that the results of its survey reflected the situation seven days after the UK referendum on the country’s membership of the European Union, a vote the association said had a “very negative” impact on the financial markets and, as a result, on investment returns.

However, markets have stabilised since then, it said, adding that the weighted average return on investments since the beginning of 2016 would have been 4.56% as at the end of August.

PensioPlus said its survey showed the returns to be principally due to a fall in interest rates that increased the value of fixed income investments.

In equities, ex euro-zone stocks made a strong positive contribution.

In 2015, Belgian pension funds posted a full-year return of 4.48%, with the real return at 2.86%.

This is also based on a survey conducted by PensioPlus.

This year, as at the end of June, Belgian pension funds’ asset allocation was split 35% equities, 45% bonds, 5% real estate, 2% liquid assets and 13% ‘other’ investments.

With regard to “persistent low interest rates”, Neyt told IPE the “vicious circle had to be broken”.

He noted that pension funds from Canada and Australia had countered the problem by making significant investments in infrastructure, including in Belgium, such as in Brussels airport and Elia, Belgium’s electricity transmission system.

Belgian pension funds, according to Neyt, are invested in infrastructure funds such as TINC/DG.

Neyt also addressed the subject of pan-European pensions funds, saying that Belgium had attracted two-thirds of funds that had moved, which made the country Europe’s predominant location for setting up cross-border pension vehicles.

Pension funds and employers that have chosen Belgium as their base include RESAVER, the European Commission-backed second-pillar scheme for researchers, and Alcon, BP, Chevron, CITCO, Euroclear, GE, Johnson & Johnson, Nestlé, Pfizer and Sanofi.

Neyt attributed this to Belgium’s legislation being fully in line with the EU IORP II Directive, with its flexible governance framework, and noted that the Belgian government had overcome a major hurdle relating to the deduction of withholding tax.

The Belgian council of ministers recently passed a bill that clarifies the tax and administrative treatment of cross-border pensions.  

Changing pension attitudes

The PensioPlus returns survey coincided with multi-employer first-pillar pension fund Ogeo announcing the results of its latest annual opinion survey.

Ogeo said the survey showed a “significant change in Belgians’ attitudes to their pensions”.

For example, whereas in 2014 7% of respondents intended to retire after 65, in the latest survey, this increased to 28%.

The survey showed that 63% of Belgians are in favour of the establishing a compulsory supplementary pension. 

Just under two-thirds of private sector workers support such a system, with public sector workers slightly less positively inclined (54% are in favour).

Only 44% of working people in Belgium have a supplementary pension scheme with their employer, 36% of which are women and 55% men, according to the survey.

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