After a long previous history, the Belgian Law on Supplementary Pensions, also known by its Belgian abbreviation WAP or as the Vandenbroucke Law, was finally published in the Belgian Law Gazette of 15 May 2003. In expectation of the publication of the necessary implementation decisions, most modifications take effect as of 1 January 2004. However, for some important novelties the Law text itself provides for a limited transition period of 6 months after the publication in the Belgian Law Gazette, being until 15 November 2003.
In this and the next issue of Van Havermaet Actueel we summarize the most important changes and novelties of the WAP.
Motivation of the WAP
Because of the ageing of the population, the future financing of legal pensions is under pressure. In the explanatory memorandum Minister Vandenbroucke himself states that the legal pensions, the so-called first cornerstone of the pension build-up, will evolve into a sort of living salary or subsistence level. For the future pensioners the financing of trips, the purchase of a computer or car, in short: enjoying life will mainly have to result from the supplementary pension on top of the legal pensions.
Since according to Minister Vandenbroucke the supplementary pensions at a company level are currently far too limited to large companies and the management, he wishes by means of this new law to democratise the introduction of group insurances or pension funds in the so-called second cornerstone to all companies and all employees.
For your information: pension saving and individual life insurances that everyone can voluntarily enter into belong to the so-called third pension cornerstone and are not dealt with by the WAP.
The financing of future legal pensions is, however, not only complicated by the ageing of the population. For that matter, it is also commonly known that Belgians do not work long enough in comparison with our neighbouring countries. For that reason, the WAP also provides for new measures that limit the advantage of supplementary company pensions in case of early retirement regulations, as a sort of "negative" motivation in order to stimulate employees to work longer.
Social pension plans
Within the framework of the democratisation of the supplementary pensions for SMEs, workers and employees, the WAP introduces the new concept of "social pension plan".
A social pension plan, that can be introduced both on the level of a company and on the level of a sector, has certain advantages if it complies with the imposed conditions.
The advantages are on the one hand the omission of the insurance tax of 4.4% on the pension contributions, and on the other hand the omission of the pension contribution when determining the maximum salary costs increase within the framework of the salary standard for the protection from our competitive position with regard to our neighbouring countries.
The conditions in order to benefit from the advantages of a social pension plan are very strict, however:
- The pension plan must apply to all employees of the company or to all employees of the sector
- The introduction should take place via a collective labour agreement that furthermore should be declared generally binding if the introduction takes place at sector level
- The pension plan should be managed on equal terms if the financing is done via a pension fund or is under the management of a supervision committee on equal terms if a group insurer manages the pension funds
- The management costs must be limited to the imposed maximum and the full profit has to be divided over the contributors
- Apart from the sound pension build-up, a social pension should also provide for solidarity performance (e.g. in case of illness, decease, unemployment, ...) of which the cost is at least equal to the assigned advantage of 4.4% insurance tax.
In view of the strict conditions, social pension plans will mainly be introduced at sector level, after negotiations between employers' organisations and trade unions. Similar plans already exist in certain sectors (e.g. workers and employees of Agoria, workers in the construction sector, …).
The introduction of a social pension plan at sector level therefore means that all employees of a company that belongs to that sector are obliged to enter into the pension plan, which will certainly improve the democratisation. However, because of cost considerations for the company questions can be asked with regard to the assigned advantages. After all, the obligatory solidarity performance must at least compensate the omission of the insurance tax and the omission of the cost of the pension plan form the determination of the maximum salary increase can result in additional costs above the salary standard.
Withdrawal of pension money
Of one's own free will, the pension plan may be withdrawn as once-only pension capital or as a life-long interest.
This individual choice already exists under the current legislation as well, but fiscally had far-reaching consequences. At a capital withdrawal the once-only tax amounts to 16.5% or 10% depending on whether it concerns an employer's or personal financing. At an interest withdrawal the annual pension interest should be added to the total income, and the normal income tax applies on the condition of a reduction for replacement income. It is clear that, because of exclusively fiscal considerations, almost everyone was "obliged" to choose for a capital withdrawal.
However, by its nature a supplementary pension is an annual supplement to the legal pension in order to maintain the same standard of living upon pensioning. In most countries there is therefore a compulsory payment as life-long interest. The WAP does not go as far as the compulsory inclusion of the pension capital as annual interest, as was considered in the preparatory activities, but wants to encourage this mode of payment by making the choice fiscally neutral and tax it equally as a capital withdrawal.
Apart from the mode of withdrawal, once-only capital or annual interest, the moment of withdrawal is important.
In the current legislation the supplementary pension can be withdrawn at the stated fiscally attractive rates at the following moments:
- At the effective pensioning
- At the early retirement (for companies in trouble this can happen from 52 years onwards)
- At insured pension plans in the last 5 years before the contractual end (therefore, from 55 years onward if the pension plan provided for a final age of 60 years).
If the pension plan was paid at another moment, this was possible and there was a marginal taxation.
This changes fundamentally with the WAP. In order to actually regard the supplementary pensions as a supplement to the legal pension on the one hand, and to stimulate people to work longer on the other hand, the pension money will at the earliest be payable as of the age of 60. Before the age of 60, withdrawal is no longer possible, also not at a marginal tax rate.
This has far-reaching consequences for early retirement regulations, the WAP provides for a transition period until 15 November 2003. Until that date, pension plans can provide for the early withdrawal for early retirement from 58 years onwards, if the early retirement starts before the end of 2009. This provision should then be stated expressly in the pension plan and as of 2010 no single pension plan can be paid before the age of 60.
Individual pension plans
A supplementary pension plan for employees receiving a salary is by definition a collective event in which all staff members of the same staff category should be treated in the same way.
In the current legislation, this principle can at an "occasional and non-systematic" basis be deviated from by means of individual pension promises. Apart from the stated occasional limitation, the individual pension promise should only be limited to the fiscal 80%-limitation.
The financing of such individual pension promises was done either via an internal provision within the company, or via a manager's insurance. In both cases the accrued pension reserves at first remained belonging to the employers of the company, and upon pensioning the company paid the promised capital directly to the beneficiary staff member on the basis of an individual pension agreement. This also meant that the staff member did not have acquired rights on the accrued pension reserves upon early leave or in case of bankruptcy. Often it was just the intention not to assign accrued rights upon early leave, in order to "bind" the staff member to the company in that way.
In practice this construction was also often used in order to translate dismissal remuneration into fiscally attractive pension promises. In order to prevent inappropriate use, in order to increase the social protection of the staff members, and in order to encourage collective plans to the detriment of individual agreements, the WAP provides for very strict new provisions with regard to individual pension plans for staff members receiving salary.
An individual pension insurance at company level can only be entered into if the following conditions are complied with:
- A collective pension plan for all employees of the company has to exist already;
- An individual promise can only be assigned occasionally and non-systematically;
- The financing of the promises should take place externally (at an insurer) and no longer via internal provision;
- The staff member is the direct beneficiary of the accrued reserves;
- The staff member must be informed annually on the status of his/her individual insurance contract, in the same way as for a collection pension plan;
- The maximum annual premium for the accrual of the individual pension promise amounts to 1,860 Euros (for 2004);
- An individual pension promise may not be entered into in the final 36 months before the departure of the staff member.
In order to verify the correct compliance with these principles, it is also provided for that each individual pension promise must be transferred to the Belgian Control Agency for Insurances and this, at the latest, 6 months after the year in which the promise was entered into.
It is clear that the options with regard to individual pension promises for staff members receiving salary become extremely limited. Finding an individual pension solution if the problem occurs is therefore practically completely ruled out. If a company wishes to assign supplementary pension plans, one is obligatorily "forced" into the direction of collective plans per staff category and a long-term planning.
In view of the grave consequences of these new provisions, a transfer period is also provided for the individual pension promises until 15 November 2003. Until that date individual pension promises may still be entered into that only must comply with the current legislation, without taking the aforementioned limitations of the new legislation into account.
For independent managers and business managers of companies, the aforementioned limitations with regard to individual pension promises do not apply.
For the existing individual pension promises nothing changes. By means of the total pension dossier of the company concerned, it can be traced whether these promises can be converted into an individual pension insurance with external financing.
In the following issue of Van Havermaet Actueel we will discuss the other changes and novelties of the WAP, such as return guarantees, plan changes, à la carte plans, illegal disputes, individual continuation, information obligations, and participation of staff members.
Bob Daenen
October 2003