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The Belgian Pension System
The pension system in Belgium revolves around three pillars. A statutory “legal” public pension system exists alongside supplementary “extra-legal” pensions and individual pension savings plans with tax incentives. Additionally, individual pension savings plans without tax incentives are sometimes referred to as the “fourth pillar”. Since Belgium has one of the lowest basic pensions in Europe, understanding the pension system is key in successful wealth planning.
First pillar: the statutory “legal” pension
The funding of the public pensions is based on a repartitioning “pay-as-you-go” system. In other words, today’s pension payments are financed by social security contributions currently paid by the employed, self-employed and civil servants. Payment of a Belgian legal pension begins when you are 65 years of age and have worked a minimum of 40 years throughout your career. However, the government agreed to raise the retirement age to 66 in 2025 and to 67 in 2030, and the minimum years worked will increase to at least 42 years by 2019. As living entirely from your statutory pension is not deemed realistic, supplementary pension provisions will be necessary.
Second pillar: the supplementary “extra-legal” pension
The second pillar consists of an occupational pension scheme that supplements the statutory pension of the first pillar. The occupational pension scheme is funded by employers through a (group) insurance scheme or a pension fund and is fully discretionary. Employers are under no obligation to grant this “extra-legal” benefit. By definition, the amount is variable. Self-employed persons can also use the supplementary “extra-legal” pension. They can opt for the supplementary pension for independents (“VAPZ/PCLI” and/or “RIZIV/INAMI”) or the individual pension commitment (“IPT/EIP”). These plans allow self-employed persons to build up a capital sum to top-up their statutory pension and they offer considerable tax advantages.
Third pillar: the individual pension savings plan with tax incentives
Even with a supplementary “extra-legal” pension, it will not be possible for most retirees to maintain their living standard. Therefore, the Belgian legislator created tax incentives to save towards retirement through tax-deductible pension savings plans, pension savings funds and long-term savings. These individual discretionary savings consist of recurring contributions subject to tax relief and they result in an accrued interest-yielding lump sum paid out upon retirement.
Individual pension savings plan without tax incentives
Traditional savings, sometimes referred to as the “fourth pillar”, do not offer tax relief but they help to ensure an adequate post-retirement income.
In particular, Luxembourgish branch 21 and branch 23 type unit-linked life insurance offer a range of opportunities for Belgian residents as instruments for wealth planning. The so-called branch 21 contracts offer a guaranteed benefit, while the benefit of a branch 23 contract is linked to the evolution of the value of one or more investment funds. These contracts enable an estate planning solution that results in both capital growth and savings on inheritance tax.
OneLife is the biggest Luxembourg based company in the Belgian life insurance market, with over 3 bn Euros assets under administration. We anticipated and quickly embraced changes brought about by Twin Peaks II legislation in 2014, which strengthened consumer protection rules to ensure greater transparency and clarity for clients.
Contact our Belgium team