The Belgian Old Age Security System in 2020

By Yves Jorens, Ghent University

The development of the old age pension system in Belgium has a long history which has led to three distinct statutory pension schemes for employees, the self-employed and civil servants. Shortly after the First World War, a transition was made from subsidised free insurance to compulsory insurance for employees and in 1955, shortly after the Second World War, a complete transition from capitalisation to a repartition system took place. In 1967, a uniform system for employees was set up (Royal Decree No. 50 for an Old Age and Survivors’ Pension for Employees). For the self-employed, it was not until 1956 that a specific scheme was established, which at the time provided for a compulsory system of individual annuity purchases (capitalisation) through a statutory insurance. In 1967, the self-employed were to be given a completely new statute (Royal Decree No. 72 of 1967 for an Old Age and Survivors’ Pension for the Self-Employed). Civil servants, on the other hand, have the oldest pension scheme dating back to a law of 1844 which is still in force today. Despite various reform efforts aiming for uniform standards, major differences between the three schemes still exist, especially for civil servants – who are granted certain privileges in pension rights until today. As of now, ‘standard protection in old age’ is based on a combination of public benefits from one of the three statutory pension schemes and supplementary benefits from occupational and private pension schemes for employees and the self-employed to guarantee a sufficient level of financial protection for these groups in old age. Benefits can be ‘topped up’ by private savings schemes which are incentivised by the state. A ‘minimum’ level of protection is guaranteed through the minimum pension level of the statutory pension schemes as well as social assistance measures.

Standard Protection in Old Age

The standard protection in old age is based on three different statutory schemes for employees, self-employed workers, and civil servants. Since 2017, all three schemes have been managed entirely by the Federal Pension Service (known as FDP in Dutch). The statutory old age pension scheme for employees(Werknemerspensioen) and the statutory old age pension scheme for the self-employed  (Zelfstandigenpensioen) are mandatory and financed through social security contributions on a pay-as-you-go (PAYG) basis. Pension benefits are mainly dependent on reaching the retirement age and ceasing any previously held employment/economic activity. However, the pension benefits of the self-employed are still a fair bit lower due to differences in the benefit calculation rules. In 2021, the standards for calculation were put on a par with those of the scheme for employees, ensuring equality in pension benefits between the two groups in the near future. The amount of pension benefits for the self-employed and for employees is based on their employment history, the wages earned during their working career and the person’s family status.

Pensions of the old age pension scheme for the public sector (Ambtenarenpensioen) are of a different nature and are paid by the government. While those pensions are also mainly dependent on reaching the retirement age and ceasing any previous employment activity, more favourable arrangements with regard to the pension calculation lead to higher pension benefits compared to those of employees and the self-employed. Advantages arise in particular from differences in the calculation base, which for civil servants is the average salary over the previous 10 years (instead of the full career), and the reassessment system of pension benefits, which is linked to prosperity and automatically adjusts pension benefits to the increase in the salary scale of staff in active employment. As the civil servant's pension is regarded as a deferred salary, its calculation is very individualised and does not consider the civil servant’s family status (with the exception of minimum pensions).¹

In order to raise the amount of the statutory pension for employees and the self-employed and to achieve more equal pension amounts between the three schemes, the importance of a supplementary funded pension has increased significantly. For employees, supplementary protection is ensured primarily via a pension plan for the company or the relevant sector activity, i.e. theoccupational pension scheme for employees (Aanvullend pensioen voor werknemers). Benefits are secured by a number of protective measures, such as the statutory return guarantee² and the obligation to have the supplementary pension plan managed by a pension institution in order to protect affiliates against a possible bankruptcy of their employer. Therefore, the management of a supplementary pension plan is compulsorily in the hands of a pension institution. This can be an insurance company or a pension fund (also known as an institution for occupational retirement provision, IORP). Participation of employers and employees is mostly voluntary and encouraged by the state via tax deductions on contribution payments. As an employer is not obliged to provide such options and to ensure that no employee is excluded, a new form of pension accrual was created in 2004: the voluntary supplementary pension scheme for employees (Vrij aanvullend pensioen voor werknemers,  VAPW). Any employee who accrues no or a very low supplementary occupational pension with the employer or sector has had the option to accrue a supplementary pension since 2019. In doing so, the employer will deduct the employee's chosen contribution from the net salary and transfer it to the pension institution without paying any additional employer contributions. The government supports participation in this scheme by making the contributions eligible for a personal income tax reduction.

Self-employed persons can build up a supplementary pension on an individual basis through the private and voluntary supplementary pension scheme for the
self-employed  (Vrij aanvullend pensioen voor zelfstandigen,  VAPZ). In order to increase this amount even further, self-employed managers can in addition build up a supplementary pension through the company where they are self-employed, via the so-called individual pension commitment  (Individuele pensioentoezegging,  IPT). Self-employed persons who do not exercise their professional activity in a company also have the possibility to save additionally with the pension agreement for the
self-employed  (Pensioenovereenkomst voor zelfstandigen,  POZ). The public authorities support all these forms by means of tax aid measures, i.e. deductions of premiums from taxable income.

Top-Ups

Finally, many tax measures (tax relief) offer the possibility to further accrue the individual pension and thereby to top up pension benefits provided by other forms of standard protection through private retirement savings and long-term savings (Pensioensparen en langetermijnsparen).

Minimum

The three different statutory schemes for employees, the self-employed and civil servants install minimum pension rights. As such, persons who have worked a minimum number of years will receive a minimum amount of the statutory pension. Those who reach the statutory retirement age and who do not have sufficient financial resources can rely on social assistant measures, i.e. the so-called income guarantee for older persons  (Inkomensgarantie voor oudere personen, IGO), which provides benefits on the basis of a means of subsistence test.

¹ All civil servants’ pensions remain a source of much debate, as they are not uniform. Because of the numerous statutes and mechanisms, the pension divergence among different civil servants is a convoluted tangle. For example, for many groups working in different public sectors (education, railways, police, magistrates) there exists a more advantageous career interruption. From a political point of view, attempts have been made in recent years to achieve further uniformity, putting pressure on the special (and favourable) arrangements for civil servants' pensions, without, however, taking as a starting point an integration of the statutory schemes for employees, the self-employed and civil servants. Thus, while largely respecting historical differences, it is proposed that a reform of the three schemes should be based on common principles, in particular through a point-based pension. 

² The statutory return guarantee is implemented as follows: the organiser (employer or sectoral organiser) is obliged to ensure that on retirement or when changing jobs, affiliates receive at least the amount of paid employer’s contributions and/or employee contributions, capitalised at a statutory minimum return.