In an Act dated 18 December 2015, which entered into force on 1 January 2016, the legislator has ratified the agreement concerning occupational pensions concluded by the social partners to ensure the sustainability and the social nature of occupational pensions and to strengthen the supplementary nature of occupational pensions vis-à-vis statutory pensions. We discuss the main features of the most important modifications to the Act of 28 April 2003 concerning occupational pensions (hereinafter the "Occupational Pensions Act") with regard to guaranteed return, pensionable age and the payment of benefits and the possibility of death coverage in case of exit.
In accordance with article 24 of the Occupational Pensions Act, the affiliated person is entitled to a guaranteed return with regard to the contributions made by the organiser of the plan (the employer or the organiser at business sector level). Until 31 December 2015, the guaranteed return amounted to 3.75% for personal contributions and 3.25% for contributions made by the employer with regard to defined contribution or cash balance plans.
Because of the low level of interest rates of bonds, the guaranteed return has been revised (i.e. lowered). As of 1 January 2016, the interest rate is aligned with the percentage (65% in 2016 and 2017) of the average return on 1 June over the last 24 months of Belgian State linear bonds ("OLOs") with a maturity of 10 years. Henceforth the guaranteed return is comprised of only one interest rate (the interest rate for both personal contributions and contributions made by the employer). This interest rate lies between 1.75% (minimum) and 3.25% (maximum). The FSMA will publish the applicable interest rate on a yearly basis. The interest rate was set at 1.75% on 1 January 2016. The maximum reference interest rate for long-term life insurance transactions has also been revised and was set at 2% by the Ministerial Decree of 20 January 2016 (see Eubelius Spotlights March 2016)
Two methods of application of the guaranteed return in case of modification of the interest rate were introduced:
- The horizontal method: the previous interest rate is applicable until exit, retirement or abolition of the pension engagement (whichever occurs first) to the contributions due on the basis of the plan rules before the modification, and the new interest rate is applicable to contributions due on the basis of the plan rules from the modification onwards until the first of the occurrences mentioned above.
- The vertical method: the previous interest rate is applicable until the modification of the interest rate to contributions due on the basis of the plan rules before the modification, and the new interest rate is applicable to contributions due on the basis of the plan rules from the modification onwards and to the amount resulting from capitalisation at the previous interest rate for contributions due on the basis of the plan rules before the modification.
The horizontal method is applied to all pension engagements introduced before 1 January 2016 where the pension engagement is executed as a whole by one or more pension institutions which guarantee a certain return for the entire pension engagement depending on the contributions which were deposited until the pensionable age. In all other cases, the vertical method applies.
For pension engagements introduced since 1 January 2016, the applicable method for capitalisation of contributions in case of modification of the interest rate must be determined in the plan rules and, in the absence of that, the above-mentioned rules apply.
The pensionable age and payment of the benefits
The legislator has introduced measures aimed at strengthening the supplementary nature of occupational pensions with respect to statutory pensions by modifying the rules on the pensionable age determined by the plan rules and the time of payment of the benefits or the reserves. These modifications were introduced on several levels:
- The pensionable age
For pension engagements introduced from 1 January 2016 onwards, the pensionable age determined in the plan rules may not be lower than the statutory pensionable age applicable at the time of introduction (currently still 65 years). In case of modification of the pensionable age foreseen in the plan rules with regard to pension promises made before 1 January 2016, the pensionable age may not be lower than the statutory pensionable age for employees employed from 1 January 2019 onwards.
- Payment of the benefits
Before the amendment of the legislation, the Occupational Pensions Act determined that the affiliated person could only exercise the right to buy off his/her insurance or could obtain payment of the benefits from the time of retirement or from the age of 60 if this was explicitly stated in the plan rules.
From 1 January 2016 onwards, the occupational pension benefits, the acquired reserves or the reserves flowing from the transfer of reserves in case of exit are payable from the time of retirement of the affiliate.
However, an exemption exists for affiliated persons who remain employed after the age of (early) statutory retirement: in that case, the affiliated person can request the payment of benefits and reserves. This possibility should be mentioned explicitly in the plan rules. The pension engagement remains in force until the time of retirement, unless it is abolished.
At the latest 90 days before retirement of the affiliated person, the organiser should inform the pension institution of the retirement. This obligation will be taken over by Sigedis (the administrator of the DB2P database) from 1 January 2017 onwards. If the affiliated person has exited, the obligation to inform rests with the affiliated person.
In the case of advances on benefits, pledge of pension rights or allocation of the buy-off value to the reinstatement of a mortgage credit, the term must not be shorter than the period of time before the statutory pensionable age is reached.
- Early exit clauses
Since 1 January 2016, clauses in plan rules encouraging early exit or retirement are absolutely null and void.
- Activities performed by the retiree
A retired employee who performs a professional activity does not enjoy the pension engagement, nor the solidarity engagement related to the pension engagement.
For these modifications, transitional measures have been provided for.
The Act of 18 December 2015 introduces similar modifications for occupational pensions of self-employed persons and company managers.
The possibility of decease in the case of exit
The social partners aimed to remedy the catastrophic situation of a "sleeper" (an employee who no longer works for the organiser (employer) and who has left the acquired reserves with the pension institution of the organiser (employer)). If the sleeper did not enjoy or no longer enjoys death coverage and passes away before reaching the pensionable age, his/her successors would not be able to benefit from the accumulated acquired reserves.
The Occupational Pension Act was modified in order to allow the affiliated person to choose to keep the acquired reserves, where appropriate increased to the amounts guaranteed under article 24 of the Occupational Pensions Act, with the pension institution of the organiser (employer) without any modifications to the pension engagement except a provision for death coverage equivalent to the amount of the acquired reserves. In that case, the acquired benefits are recalculated on the basis of the acquired reserves in order to account for this death coverage. The affiliated person can choose this option within one year. This new possibility applies to all exits from 1 January 2016 onwards.
The modifications entered into force on 1 January 2016. They also apply to individual pension promises. The plan rules should be formally modified by 31 December 2018 at the latest.