Retirement

25 Januari 2018

Pension: will I have enough?

Knowing what your income will be when you retire can be a tricky business if you have lived and worked for private companies in multiple countries. Add to this having spent several years working part time or not at all for one reason or another, and thinking about those golden years can turn out to be more stressful than enjoyable.

In Belgium, a maximum pension is earned based on having worked for 45 years. According to the National Pensions Office, the gross maximum state monthly pension is currently €2,988 for couples and €2,391 for individuals. The minimum is €1,526 and €1,221 respectively.

Keep in mind, however, that Belgium’s tax rates are one of the highest in the EU. Also, if you don’t reach the maximum number of required years worked, even your gross pension could be significantly lower.

Expats will need to claim benefits from any country in which they have lived and worked. If you need to claim these from an EEA country (EU member states plus Iceland, Liechtenstein and Norway) or Switzerland, there is a convenient system whereby Belgium’s pensions office will contact the other countries and figure your pension payments for you.

If you worked outside of those countries, you’ll need to contact the applicable country yourself to arrange pension payments.

Personal pension savings

Because it can be difficult to calculate decades ahead of your retirement exactly what you’ll be receiving every month – let alone what your circumstances will be at the time – personal pension savings is a sound financial decision. Not only will you be saving to pad out your post-retirement income, you’ll get a tax break on the savings now.

If you have a pension scheme through your employer, that’s a great perk – but it doesn’t mean you shouldn’t invest in your own private pension fund. Most of us do not spend our entire lives with one employer, so the pay-out from these funds can be less than you might expect. It’s also crucial to keep track of these funds yourself if you leave an employer: It will be your job to claim the benefits when you retire, not the employer’s.

Pension savings plans are investments that can be as low-risk or as high-risk as you want. Made up of a portfolio of shares, bonds and cash positions, the higher the risk, the higher the potential pay out when you hit retirement age. Lower-risk plans come with fixed interest rates that are higher than a savings account.

Tax breaks now

There are two kinds of pension investments in Belgium: Long-term Savings and Pension Savings.

  • If you are getting tax relief because of mortgage payments, it’s best to go with the Pension Savings. As Long-term Savings falls into the same tax relief category as mortgage payments, any tax relief from the savings is cancelled out.
  • If you do not have a mortgage, however, Long-term Savings is more fiscally advantageous. In either plan, you see an annual tax reduction of 30% of what you put into the plan. So for instance, if you put €700 into a plan, you will pay €210 less in tax.

Tax relief, however, is currently capped at €2,260 in deposits per year for a Long-term Savings plan. This means a maximum annual tax relief of €682.

For a Pension Savings, the cap is €940 in pension deposits a year, meaning a maximum annual tax relief of €282. Keep this in mind if you plan to make larger deposits per year or maintain multiple funds.

The new budget period for 2018 has seen the addition of a second calculation for Pension Savings: A tax reduction of 25% (instead of 30%) on a maximum deposit of 1,200. This increases the maximum tax relief to €300. Investors will be able to choose which system to use.

Private pension plans also guarantee that you will not lose the money if you die; the reserve, along with any interest earning, will be paid to your next of kin.

Penalties

Pension plans in Belgium are geared toward lump sum disbursements, with a tax rate as low as 8% when paid out at 65, the current legal retirement age. Earlier retirement means higher tax rates: 16.5% at 62 to 64, 18% at 60 to 61.

However, retirees who withdraw the full pension capital and buy a life annuity with it will be taxed at a rate of 0.81% of the capital they surrendered.

Pension funds come with an entry fee, which is a percentage of what you’re paying in. It’s basically a service fee to the bank or insurance firm where you’re buying the fund. You can often find special offers of 0%, and some go all the way up to 6%. Make sure you know what the entry fee is before you sign.

There is also a service fee for every deposit you make. This is usually less than the first deposit. So while you might pay 3% for your entry fee (first deposit), this could drop to 1.5 or 2% for subsequent deposits.

Want to know more about preparing your pension in Belgium?