On 31 December 2009, an important transitional provision of the Belgian Supplementary Pensions Act (Wet op de Aanvullende Pensioenen – WAP) comes to an end. From 2010, employees’ pension plans will only be able to be paid out from the age of 60. Until the end of 2009, these pension plans – if taken out before 16 November 2003 – can still be paid out prematurely in case of early retirement with the favourable tax rate, or commuted at another age at a tax rate of 33%.
In other words, from 2010:
- Employees will no longer be able to commute their pension policies (not even at a marginal tax rate) before reaching the age of 60, even if they go on early retirement at a younger age. The tax rate will be 16.5% (on benefits that accrue from employer and employee contributions until 1 January 1993) or 10% (on benefits that accrue from employee contributions from 1 January 1993). The reduced tax rate of 10% applies to all pension benefits upon payment at the age of 65, provided the employee remained ‘effectively active’ until that age.
- Self-employed persons will be subject to the same tax rates on payments from the age of 60 and to the favourable scheme at the age of 65, but will also retain their option to commute at a younger age at a tax rate of 33%.
- In case of many pension plans, death cover is insured via separate contracts that are often terminated on leaving employment. If pension contracts only provide for benefits if the retiree is alive at the time of payment, this also means there is no longer any provision for payment in case of premature death. To make up for this, each employee may decide individually on departure to transfer his or her accrued pension reserves to the pension assets transfer facility of the pension plan. In this way, part of the pension accrual can be converted into the required death cover. In other words, the employee purchases death cover that is financed by a portion of the accrued pension reserve.
In case of normal departure, therefore, employees can each deal with their accrued pension benefits as they wish via the pension asset transfer facility.
In case of early retirement, the same principles often apply with regard to the termination of death cover. Up to now, there has been no immediate need to retain death cover as every early retiree could choose to have his or her accrued pension benefits paid out at a favourable tax rate. However, from 2010, all early retirees must wait until the age of 60 before payment can take place. If the pension plan does not provide for the retention of death cover, heirs therefore run the risk of no payment in case of death before the age of 60. To avoid this, the early retiree can switch to the pension assets transfer facility, but his or her accrued pension benefits at the age of 60 will then decrease significantly because of the cost price of death cover.
If the activity rate and retirement age are raised further in the future, this problem will fade away over time if the youngest age for early retirement effectively becomes 60. At the moment, however, a significant portion of the working population is going on early retirement before the age of 60. Particularly in case of restructuring, where early retirement is often encouraged, we recommend that you adjust the various types of cover of your pension plan, where necessary, to the new provisions that will come into force from 2010.