Lifetime rates for Belgian hybrids
The Belgian government is set to put an end to months of heated debate on the implementation of sector-wide pension funds by announcing a system of lifetime guarantee rates for the new hybrid DB/DC plans – one of the main sticking points between the legislator and industry groups.
With only one in three employees in Belgium currently in an occupational scheme, the government has been wrestling with the introduction of a second pillar pensions structure that would be both safe and collective in nature, but attractive enough to plug the gap in retirement cover.
The compromise reached - the lifetime guarantee rate – will avoid any yearly worry about return levels by pension funds, whilst at the same time ensuring an average return of an expected 3.75% over, for example, a working life of 30 years - if one per cent of salary is contributed to the plan.
For employees leaving a fund benefit levels will be calculated on a pro rata basis. Henk Becquaert, cabinet adviser to the Belgian minister of social affairs and pensions, Frank Vandenbroucke, explains that the ink is almost dry on the legislation, apart from a few points. “These are high level discussions and it is possible that they will be debated by the council of ministers on Friday (January 19).
“I don’t know if the council of ministers can make a decision then but it will be this month at any rate.”
Becquaert says the guarantee rate debate is still live but that essentially the “principle” has been agreed.
“I see in the pensions sector a little bit of concern about this, but what it will mean is not an annual guarantee but an average guarantee.”
“At the age of pension you have to give a guarantee over all the contributions that have been made – so it is a long term guarantee.”
Belgian pension funds had been alarmed that such return targets could force them to take a static view on their investments so as not to flout the legal return levels.
Karel Stroobants, president of the Belgian Association of Pension Funds (BAPF), comments: “We are now in a phase of background battles, but I think the outcome will be good.
“What I have heard from the controlling bodies is that they will adapt the minimum funding requirement in the legislation and change the interpretation level so that we will look at it over the long term and not year by year.”
“We think the government has listened to what we had to say and will change this.”
Stroobants adds that he hopes the revised changes will take into account the statement of investment principles (SIP) and risk profile of different funds.
“Volatility is OK, but if you are above or under set targets then you should have to react.”