The Belgian government finally reached agreement in January on a framework for occupational sector-wide and company pension schemes after last minute wrangling over guarantee rate levels for the hybrid defined benefit (DB)/defined contribution (DC) plans.
The guarantee will now be tagged to inflation for the first five years of contributions before switching to a 3.25% long-term rate.
This latest development, known commonly as the Vandenbroucke law, in the evolution of Belgium’s pension system seeks to plug a gap in 1995’s social security law (Loi Colla), which overlooked industry-wide pension arrangements, since only one in three workers in Belgium currently belong to an occupational pension plan.
Now all workers within an industry sector will be able to contribute a minimum tariff – to be decided upon by royal decree – in order to belong to the ‘solidarity’ portion of the fund, whilst able to make additional contributions of up to 5%. Charges will be no more than 5% of premiums.
In line with the new proposals, the Belgian Association of Pension Funds (BAPF) put out a checklist of pensions issues that it thought should be highlighted or clarified before the law is ratified by the parliament, including the question of discrimination between sector and company pension plans, worker mobility and investment return guarantees. According to the BAPF, discrimination could be avoided by adopting mutually collective laws for both company and sector wide pension plans.
This it says would avoid a situation whereby sector pension plans can introduce different pension arrangements for different grades of employees under collective agreement, but company plans, which are obliged to include all their employees in one arrangement, could not.
The BAPF believes then that the issues of over-regulation, the burden of administrative charges and the ways in which pensions are ultimately paid also need to be addressed.
Overall, Belgian pension funds recorded the third lowest returns last year since statistics were first issued, falling by 0.07%, according to a survey of 135 Belgian pension funds. However, looking at things long term, the picture is a little more positive, with three-year average returns at 10.52% and 12.68% over five years and as a result, contribution levels from employers and employees were down for the second year running, dropping 16% on the year from €464.9m to €417m, a reflection of the favourable returns over the last few years.
The survey also shows that Belgian funds are still investing large portions of their assets in Sicavs on investment funds,with 65% of investments last year going the pooled fund route, not only highlighting in part the possibility of diversification offered to small pension funds, but also the fiscal imperative whereby pension funds are still the only institutions obliged to pay a tax (précompte mobilier) on direct investments.
But Belgium’s two linguistically opposed populations are moving at different speeds towards ensuring retirement provision, with the more economically stable Dutch speaking Flemish setting up separate funds of their own.
The new ‘care fund’ to be launched by the regional government of Flanders later this year will set out to provide extra heath care post retirement benefits to the Flemish only, despite the recently instigated Silver fund, the government sponsored federal reserve.
As the care fund grows, since it will function as a fully fledged investment vehicle, its beneficiary base will be extended but still only within Flanders. It will receive an initial donation from the Flemish government of Bfr4bn (@99m) which will be invested mainly in equities.
Initially, during discussions, it was assumed that any concrete developments towards setting up additional fund instruments like the care and Silver funds would form part of the national social security system. However, this would have led to considerable extra funding and could have had an unfavourable effect on the level of wage costs. Since nothing came of the federal-wide discussions, the onus was put firmly on the local communities.