The Programme Law was published in the Belgian official Journal just before the holidays. This law provides for various new provisions regarding additional pensions from the second pillar (occupational pensions). Although the precise implementation arrangements are not entirely known yet, we wish to give you a concise overview of the most important changes in this newsletter.
- Special contribution for high pensions
In the first instance the government wished to restrict additional pensions because it is not ‘the intention to subsidise capital accumulation by granting tax concessions on pension contributions’. Consideration was given to the maximum civil servant pension of approximately 6,000 euros per month as the highest limit for the sum of additional and statutory pensions. This position, however, opens an ideologically delicate discussion between the different systems for statutory pensions for civil servants, salaried employees and the self-employed. What is more, most additional pension plans provide for a capital payment which must necessarily be converted into a monthly payment in order to test the comparison with the maximum civil servant pension. This conversion from lump sum to monthly pension is, however, based on the expected mortality risks, interest rates, indexations etc., in brief, again very sensitive parameters in the current market circumstances. To prevent an extensive and long-term ideological debate on this subject, placing restrictions on additional pensions has been dropped (temporarily?) and this has been replaced with an additional special contribution for high pensions.
During a transition period from 2012 until at the latest 1 January 2016 this special 1.50% contribution will be applied if the annual employer premiums for a particular employee or self-employed director are at least 30,000.00 euros. According to the Explanatory Note, and according to the wording of the law for the self-employed, this contribution is due on the part of the premiums that exceeds the 30,000.00 euro limit. According to the wording of the law for salaried employees, however, this contribution is due on the full amount of the contribution if the limit is exceeded. This is probably a mistake and this wording will be rectified.
As regards collective capitalisation pension plans, where no individual premiums are paid per employee but a general allocation is made for all employees together, the individualisable premium is equivalent to the growth in the entitlements acquired during the year in question for the purposes of monitoring this 30,000.00 limit. This is done without taking into account the interest that is added.
As regards the self-employed, no account is taken of the contribution for the Voluntary Additional Pension for the Self-employed (Vrij Aanvullend Pensioen - VAPZ) when calculating the potential 1.50% contribution.
A new calculation method for the special 1.50% contribution for high pensions will be implemented at the latest on 1 January 2016. By that time Sigedis (Sociale individuele gegevens/données individuelles sociales – Individual social security data) must have collected and processed all data regarding all additional pension plans for all salaried employees and self-employed persons. On the basis of this national database for additional pensions Sigedis can then estimate the value of everyone’s additional pension plans, built up with various insurers and/or various employers and/or various statuses. Sigedis will then link the value of the additional pensions to an estimate of the statutory pension, either as a salaried employee or self-employed person, and compare this to the maximum civil servant pension. If this is exceeded then the special 1.50% contribution will be due on the premiums that are paid.
This special contribution is equivalent to a social security contribution and the precise arrangements for payment and collection still need to be decided.
- Tax on the basis of pensionable age
Today, additional pension capitals from the second pillar are taxed at 16.50% if they are made up of employers’ premiums (10% for capitals made up of individual contributions). This final tax falls to 10% if the insured person remains ‘effectively active’ until the age of 65 and claims the pension at 65.
To encourage longer working, the final tax will increase to 20% if one claims at 60 and 18% if the pension is claimed at 61, instead of the current 16.50%.
These increased tax percentages at 60 and 61 commence for pension claims from 1 July 2013 (who else will benefit from the current percentages in June 2013? who does the government have in mind here? most other measures are after all implemented retroactively and this change is announced one year in advance)
- Ban on internal pension provisions
Previously, self-employed managers and directors of companies could finance their additional pensions internally by arranging a tax-deductible provision. They were therefore not obliged to take out external insurance, which was required for employees. Accruing an internal pension provision had advantages (no tax or insurance fees; the money does not leave the company via premium payments but only when the pension is paid…) and disadvantages (no accrued rights in case of bankruptcy; no reduced 10% tax if the pension is taken up at 65…). This option will however be drastically limited from 2012:
- New internal pension commitments are prohibited and it is compulsory for all additional pension plans to be financed externally through an insurer or a pension fund.
- Existing internal pension commitments remain tax-deductible up to the provision made in the last financial year ending before 1 January 2012 and on condition that Sigedis is informed of this from 2013.
- If you wish to keep the original pension commitment, the difference between the promised pension capital and the provision that has been made which remains tax-deductible must be built up via an external pension plan.
- The accrued internal pension provisions can also be transferred to an external insurer and, in order to promote financing of all additional pension plans outside the company, the 4.40% insurance tax will not apply to the transferred internal pension provisions.
- An additional tax of 1.75% will not be levied on the existing internal pension provisions that are made during the last financial year ending before 1 January 2012. This one-off 1.75% tax can also be spread over 3 annual tax payments of 0.60%.
Overall, we can therefore conclude that the provisions of this Programme Law for additional pensions only impose additional charges, restrictions and/or obligations. This is perhaps understandable in the search to find additional income to reduce the budget deficit, but it does not on the other hand directly stimulate an expansion of additional pension plans to cope with the looming cost of the greying population.
Also note the constantly increasing influence of Sigedis, which will eventually group all additional pension information. This data collection is certainly a positive development if every citizen gains access to his or her overall pension file in this way, including statutory pensions. It is however written in the stars that this ‘pensions register’ will not only be used for information purposes. Additional, specific checks and new specific taxes can be expected in order to deal with abuses and so-called ‘perverse effects’ and recent checks on the 8.86% Social Security contribution and the new special contribution for higher pensions are the first results of this in this context.