Increase in statutory pension ceiling - positive or negative?
Everybody who is subject to the Belgian social security system as an employee builds up a part of their future Belgian statutory pension as an employee for each year worked (1/45th).
The calculation of this legal pension is done according to a specific formula, which is based on the salary you earned during your working years (i.e. your career) - and on which social contributions were paid. However, the salary to be taken into account when calculating your statutory pension is not taken into account as a whole, but is limited to a certain amount: the so-called "statutory pension ceiling".
For supplementary pensions (2nd pillar, i.e. accrual via group insurance or pension fund) this legal pension ceiling is also often taken into account. The pension regulations of these schemes always define the contributions to be paid. It is common practice that the amount of these contributions is then determined by taking this statutory pension ceiling into account in one way or another.
For example, it is common for an employer to make the pension budget dependent on whether the amount of salary is more or less than the statutory pension ceiling.
Act of 15 June 2021 and RD 29 August 2021: amendment of Royal Decree No 50 of 24 October 1967
It is the intention of the De Croo government to increase the statutory minimum pension for a full career to EUR 1,500 net by 2024. This ambition is also stated in the coalition agreement.
This increased legal minimum pension is important to combat poverty amongst the elderly and to maintain their purchasing power.
Within the framework of this objective, the legal pension ceiling will be gradually increased. An increase in the statutory pension ceiling means that people will (potentially, because it depends on the real wage of each individual) accrue statutory pension rights on a larger part of their salary. The statutory pension ceiling is included and defined in Royal Decree No. 50 of 24 October 1967 ("R.D. No. 50"). The increase of the statutory pension ceiling therefore implies an amendment of this Royal Decree No. 50. This adjustment was recently implemented by the Act of 15 June 2021 and the Royal Decree of 29 August 2021.
The increases in this ceiling, as provided for in the aforementioned regulations, are much larger than those we have known to date. For example, the legal pension ceiling, which is currently EUR 60,026.75, will increase by at least 12% by 2024. Below is the table with the planned increases in the statutory pension ceiling for the coming years.
| Statutory pension ceiling 2021-2024 |
|
| 2021 |
62.684,50 EUR |
| 2022 |
64.176,39 EUR |
| 2023 |
65.705,90 EUR |
| 2024 |
67.266,74 EUR |
These amounts are still subject to future indexation.
Consequences for the supplementary pension?
The above-mentioned increase in the statutory pension ceiling will, however, also have an impact on supplementary pensions, due to the practice outlined above of taking this statutory pension ceiling into account in a certain way in the pension regulations.
For example, we may be faced with the following situations if the future salary increases for employees do not follow the upward trend of the statutory pension ceiling. The possible effect depends on the type of supplementary pension plan one belongs to.
- In Defined Contribution or Defined Contributions plans where the legal pension ceiling is taken into account when determining the budget to be spent on building up a supplementary pension: if salaries do not increase proportionally with to the increase in the legal pension ceiling, this will lead to a lower budget for building up a supplementary pension, which in turn will obviously result in a lower pension capital at the end of the plan.
- With Defined Benefit or Attainable Target plans that take into account the statutory pension cap, the pension capital at the end date will be smaller. The cost for the employer therefore decreases, because less supplementary pension capital needs to be built up.
Fiscal: calculation of the 80% rule
The increase of the legal pension ceiling may also have unexpected consequences from a fiscal point of view. The sum of the statutory pension and a supplementary pension built up in a supplementary pension plan (statutory + supplementary in 2nd pillar) may never exceed 80% of the gross annual salary of the last year of normal activity. In this formula, 80% of the current gross salary is taken, from which the estimated statutory pension is deducted. This result is then multiplied by the part of the career taken into account. For the record, the last step is to convert the interest obtained into capital, in order to obtain a comparable basis - after all, the vast majority of supplementary pension plans are paid out in the form of capital. Since the amount of the deductible statutory pension increases in the above formula, the amount of supplementary pension capital that falls within this 80% rule, and that can therefore be built up in a tax-friendly manner, will be lower.
Actuarial calculations
Finally, the increase of the legal pension ceiling will also have an impact on the actuarial evaluations. Due to the increase, the expected pension capital at the end age will be smaller than the amount of pension capital originally calculated. As a result, the international accounting obligation known under the term "IAS19 obligation" will decrease. This means a saving for the employer.
Possible solutions:
If desired, there are various options available that can somewhat cushion the potentially undesirable impact of the sharply rising statutory pension ceiling on supplementary pensions - i.e. a reduction in the supplementary pension accrued - such as introducing an own company ceiling or lump-sum ceiling instead of using the statutory pension ceiling, i.e. separate from the statutory pension ceiling, which can then also be indexed annually, for example.
Any plan changes must of course take into account the applicable rules of the unitary statute.
Formalities
Any (regulatory) changes to a supplementary pension plan that is subject to the Supplementary Pensions Act ("WAP") must be made taking into account the procedures provided for by this Act. In such procedures, one can always classify 3 phases within the company:
- Prior consultation procedure: prior notification and request for advice to the social bodies (i.e. works council, Committee for Prevention and Protection at Work or trade union delegation), or individually to your employees if no social bodies are present;
- Decision-making procedure: the actual decision to amend the rules must be taken by the employer (i.e. by collective agreement, by the procedure for amendment of the labour rules or by individual agreement of the affiliated parties);
- Communication procedure to the affiliates regarding the decision taken. In many cases this largely runs parallel to the actual decision procedure, but it is important to ensure that the affiliates receive complete and accurate information about their supplementary pension plan.
Conclusion
The statutory pension ceiling for employees will be raised substantially in the coming years as a result of recent regulations.
However, in a number of cases, the increase of this statutory pension ceiling also has consequences for the amount of supplementary pension capital to be built up.
The relationship between the two is like two communicating vessels: the fact that more statutory pension rights are accrued will only result in a lower supplementary pension capital.
This effect may be seen as undesirable. Therefore, in that case, always contact your account manager who will provide you with the necessary information and further guide you through the process if you are considering taking further measures.