26.11.18 A new supplementary pension vehicle for employees
Parliament has approved a draft law which provides for a new product of supplementary pension for employees. Besides the pension plan signed by the employer, there will also be the possibility for employees to build up a second-pillar pension via a “free supplementary pension for employees”.
Up until today, supplementary pensions for employees were principally built through the initiative of the employer in the framework of the Law on Supplementary Pensions (LSP), either via a collective pension plan for all or part of the staff or via an individual pension plan.
With the new law, employees will be able to take the initiative to sign a pension plan, namely a free supplementary pension for employees (FSPE), without having to wait for their employer to take an initiative in this matter.
The FSPE is in principle open to all employees, regardless of whether or not they are already benefiting from a pension plan from their employer. However, in practice, the FSPE will mainly be accessible to employees who do not benefit from a pension plan from their employer or who benefit from a limited pension plan (see below).
The employee has the initiative regarding the FSPE, and can decide the following:
- To take the decision in an autonomous way to sign the FSPE or to terminate it;
- To determine the amount of the premium (within the limits of the law, see below) and also to determine the frequency of the payments (monthly, quarterly, etc.);
- To can choose which pension institution to be affiliated with (insurance company or pension fund);
- To choose the modalities of the supplementary pension (branch 21 or 23, death cover, beneficiary of the potential death benefit, etc.)
3. Role of the employer
The employer only has an administrative role regarding the FSPE, and only has to deduct the pension premium from the employee’s net salary and remit the premium to the pension institution chosen by the employee.
In that regard, the employee has to inform the employer at least two months in advance of the premiums that need to be deducted from his/her remuneration, along with the certificate from the appropriate pension institution that confirms that a pension contract has been signed.
The employer does not have any other obligations. Indeed, contrary to a pension plan signed in the framework of the LSP, the employer does not have to provide a guaranteed return or provide specific information to the employee in case of exit.
4. Amount of the premium
The maximum premium that can be deducted annually on the employee’s remuneration is 3% of the reference salary. However, if 3% of the reference salary is less than EUR 1,600 (indexed amount for 2019), the employee can choose to pay a maximum of EUR 1,600.
The reference salary is the gross remuneration subject to social security contributions that the employee has received during the second year preceding the payment of the premium (the amount is mentioned in the individual account).
However, for employees who already benefit from a pension plan from their employer, the above-mentioned premium will have to be reduced by the increase of acquired reserves that have been built up during the reference year, namely the second year preceding the payment of the premium (for the premiums paid in 2019, it will have to be reduced by the increase of acquired reserves that have been built up between 1 January 2017 and 31 December 2017). Therefore, it is possible that the amount of the premium is lower than 3% of the reference salary, or even that the premium is cancelled as the employer’s pension plan already covers 3% of the reference salary.
5. Entry into force
The FSPE will enter into force 3 months after its publication in the Belgian Official Gazette. Employees will in principle be able to sign a FSPE as of 2019.
The main question is whether this new mechanism will be used by the employees. Although this new pension vehicle provides for a tax reduction of 30%, the third pension pillar will still be more favorable from a tax point of view.
Employees will therefore have to analyze whether signing a FSPE is advantageous for them individually. As for the employers, they will have to set up, with their payroll administrator, an administrative procedure to deduct the premium of the FSPE in case an employee asks for it.
Employment, Pensions & Benefits Team