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Top 1000 Pension Funds: Discouragement for early retirement

The government has held the official retirement age at 65, while introducing measures to progressively raise the minimum early retirement age, writes Nina Röhrbein

In its 2012 budget, the Belgian government refrained from raising the official retirement age above 65. However, it introduced measures to discourage early retirement, which on average is taken at age 59.

As a result, from January 2013, the minimum age required for early retirement started to increase. It will rise by six months each year, starting from 60 until it reaches 62 in 2016.
At the same time, the government increased the minimum contribution period to 40 years from the current 35.

In addition, the tax burden on retirement between 60 and 62 was hiked from 16.5% to 20% on any lump-sum payments, effective from 1 July 2013.

However, while the effective retirement age may be increasing, it remains a political issue due to the influence of the unions and social partners.

Employees working for companies undergoing restructuring, for example, are allowed to retire earlier under the economic collective dismissal rule.

This is just one issues being examined by the committee set up by the government to assess ongoing pension reform. The committee of experts is academic in nature to avoid pressure from employers, unions or insurance providers. However, the group has yet to announce any results, and with federal elections scheduled for 2014, the committee may postpone any announcements until after the election.

Under the legislation governing the second-pillar pension funds, the Vandenbroucke law, Belgium still has two different systems for blue-collar and white-collar workers.

These include different pension schemes for blue- and white-collar workers in the same sector of employment. White-collar workers generally fall under company-sponsored plans, while the plans for blue-collar workers tend to be more basic in nature – typically defined-contribution (DC) plans with low contribution rates of 0.5-1%.

The 8 July deadline for harmonising the two systems was met. But, while the regimes were harmonised in many points of employment, such as sick pay, nothing has yet been formally decided on their pension and benefits. Nevertheless, the differences in their second-pillar provision are expected to be removed soon. And these differences will have to be abolished before any potential decisions are taken on second-pillar compulsion.

At present, those in industry-wide pension funds who wish to change the sector of their employment can leave their accrued pension rights in their old fund. They have the option to withdraw the accrued money from their former pension funds at any time.

“Over time, the number of so-called sleepers – those that have changed sectors and have a continuous option to withdraw the money and transfer it to another pension fund – has increased,” says Karel Stroobants, an independent expert in the Belgian pension fund industry. “Certain sectors with a large number of sleepers are at risk that their former employees will ask for a transfer of their money to an insurance company or another sector. In other words, there is a risk for a potentially huge cash drain.”

Stroobants believes a time limit of six months to a year should be imposed on this withdrawal option in the Vandenbroucke law. But a lack of interest from the social partners on this issue has meant that it has become a largely technical discussion.

Belgian pension plans are financed through either autonomous pension funds, so-called OFPs, or fall under group insurance contracts.

Social law requires employers to guarantee 3.25% on employer contributions and 3.75% on employee contributions for DC plans, which applies to both pension funds and group insurance. There is pressure to lower the interest rate but, politically, this remains difficult as the social partners are against it.

However, as a result of falling yields on bonds and looming Solvency II legislation, insurers have lowered the 3.25% interest guarantee they had in place until the end of 2012 to rates of 2.25% or 1.75%.

Due to the resulting gap between the rate employers need to guarantee and that offered by insurers, potential liabilities could remain with employers. A move from pension funds to insurance companies has also become difficult.

Despite the introduction of several changes to the withholding tax system, a budget review in the summer confirmed the tax-exempt position for pension funds following strong lobbying in the run-up to the review.

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