At last, second pillar pensions coverage in Belgium is spreading out to the edges of the country's workforce. Now that new pensions legislation has taken full effect, new sector funds are about to spring up and existing sector schemes are fit for the future.
By the end of this year, Belgium's sector pension funds will have 66% coverage of the 3.5m workforce, and in five years' time this will have grown to 80%, according to official figures.
Sector pension funds already exist for electricians, garages, auto repairers, metal trades and metal recovery, fuel dealers, the food industry and stage arts. The metal industry has already entered the system, and the construction industry joined in this year.
The healthcare sector pension fund will be fully operational by January 1, 2010, says Karel Stroobants of consultancy Akkermans Stroobants & Partners. "I do believe we will reach 80% in five years," he says.
The 2004 Vandenbroucke law on supplementary pensions required that all employers in an industry join their sector-wide pension plan, unless the collective labour agreement which governed the plan allowed opting out.
At the moment, the social partners are busy thrashing out details of a two-stage wage increase, says Philip Neyt, chairman of the Belgian Association of Pension Funds (BVPI). How much cash will be available for the sector funds depends on the result of this, as each industrial sector defines how much room there is to increase salaries, he says.
Every two years in Belgium a national margin wage increase is negotiated, and the social partners then negotiate within that to determine the sectoral increase. As an incentive for sectors to create pension funds, the new law allows contributions to second pillar pensions to be added to the margin figure.
Whatever the result of the talks, says Neyt, the question of what the negotiating partners will do with the margin will remain. "Either to give the cash immediately, or build it up into a deferred pension - that's a decision that will be made by the social partners in the next few weeks," he says.
But the room for manoeuvre is not great, he says, with wages already quite high. Neither does Stroobants see much scope for adding funds to the pension schemes. This year, he says, the margin rise has been set at 5% plus inflation, but this has to be divided between education, training and pensions, he points out.
But at least the question of sector pension schemes has come to the top of Belgium's political agenda once again, he says. "Politicians really want more sectors to join in; they know it's necessary to complement the first pillar."
Neyt agrees that there is certainly a positive political climate. "At least all political parties are agreed that all sector pension funds will go ahead," he says. "That has not always been the case in the past."
There have been concerns that the attitude of trade unions could hamper the growth and spread of sector-wide funds. Their fear has been that second pillar pension provision could grow at the expense of first pillar provision.
Major union FGTB says it prefers sector schemes to corporate pension schemes. According to its research department: "In sector schemes, workers are more involved in the governance. There is a better protection of their rights and there is more solidarity between workers.
"From the view of the fund, because of the bigger scale of the scheme, the costs are lower and the conditions to invest are better. Nevertheless, the FGTB thinks that it is even better to invest in the development of a higher legal pension. A better legal pension satisfies our solidarity expectations even more."
he funds already being set up, and those envisaged, cover the key industrial sectors, the interim workers and ‘Sector 218' which includes all people who are not covered by other sectors, says Stroobants.
The FGTB says there will be a big increase in workers covered by a complementary pension when the sector fund of the non-profit sector starts in 2010.
Sector schemes have a long tradition in Belgium, the union points out. They are well-established in sectors such as the construction industry, the metal industry and the energy sector. But they were not always seen as complementary pensions.
In the old days, the union says, many sectors gave their members - mostly blue collar workers - a premium on retirement, or holiday pay. There were no individual accounts and benefits simply stopped when workers left their employer.
But since 2004, all sector schemes have to comply with the new legislation; they have had up to the end of last year to do this.
"Most sector schemes have made the necessary modifications," says the FGTB. "Many of them did not start a real fund; because of the small numbers of workers in some sectors and the difficulties in governing a fund (…) many sectors preferred to conclude agreements with insurance companies," the union said.
Another new law came into effect at the beginning of January, translating the EU directive covering the activities and supervision of occupational pensions institutions into domestic law. With the legislation, commentators say the government has aimed to create a flexible legal and fiscal context for pensions to make Belgium attractive for pan-European pensions.
The fact that there is now good legislation in place governing the fiscal status of pensions is positive for the Belgian pensions industry as a whole, says Stroobants.
Rather than taking members away from corporate schemes, the sector schemes are providing coverage for workers who would otherwise have had no access to second pillar provision, Stroobants explains.
So the sector schemes will have no real impact on corporate schemes in Belgium. It is only the new law that could cause some of the smaller ones to be axed. "The requirements of the new law are quite complicated, and call the viability of very small schemes into question," he says. "They have to face the challenge of all the regulation."
maller schemes will either have to outsource more intelligently, or choose an insured model instead, he says.
"Today, many of these schemes have no administration of their own; in many cases the actuarial consultant offers some form of administration as a complementary service, or the HR department takes care of it," he says. The investment is done by the sponsor's home bank, and investments are limited to UCITS and SICAVs, he says. In fact, those schemes are run by the consultants and, or, asset managers instead of the board of directors, he says.
They fall short of current requirements, in that they lack formal agreements, statements of investment principles and have inadequate boards of management and so on, says Stroobants.
By law, the funds have to guarantee a return on investment of 3.25% for the employers' contributions and 3.75% for the workers' payments. Achieving the minimum level is a major concern for the sector funds, says the FGTB.
But in general, sector funds are more careful with their investments than corporate pensions funds, it says. "A new evolution in recent years is the attention to socially responsible investments," it says. "More and more sector funds are working on that basis."
Most of the new sector funds have chosen to put their money into insurance contracts rather than pension funds. Only three of the funds have opted for the pension fund model, says Stroobants. Of those pension funds that have been created, all take the form of the Anglo-Saxon model, he says, with standard asset allocation, and without high levels of alternatives or private equity.
Pension funds are only a viable way of handling investments for a sector fund with between 10,000 and 100,000 members, says Stroobants. But the insured model does has many advantages, he says, in that the scheme can buy a guaranteed return, and also pass the burden of administering the fund onto the insurance company.
He points out that it is mainly because the stock markets are so robust at the moment that the cost of the insurance guarantee comes into question.
However, even for sector funds that have initially opted for an insurance company to take on the administration, there has been a trend for pension schemes to take this function back in-house. "They want to do the communication themselves," he says.