31 March 2016
What will my pension be based on?
The Belgian pension system has 4 main elements: the statutory pension, the supplementary or "extra-legal" pension, the individual pension savings with tax incentives and the non-fiscal individual savings plan (no tax incentives).
How does it all work? Which of these elements are relevant to you? What should you do? We will explain everything that you need to know.
The first pillar: the statutory pension
The statutory pension is the pension which the State pays to Belgian workers who have reached retirement age. The amount varies according to several factors:
- the number of years worked
- the salary level
- the status of the worker (employed, self-employed or civil servant)
The statutory pension is based on the "pay-as-you-go" system. In other words, today's pensions are financed by the social security contributions currently being paid by employed people.
The second pillar: the supplementary or extra-legal pension
The supplementary or extra-legal pension supplements the statutory pension. This is funded by employers, via a group insurance scheme or a pension fund. The supplementary or extra-legal pension is a benefit which the employer may grant, but employers are under no obligation to do so. By definition, the amount is variable.
Self-employed workers can save via a supplementary pension plan which attracts significant tax advantages. This plan allows self-employed persons to build up a capital sum to top-up their statutory pension.
The third pillar: the individual pension savings plan
The individual pension savings plan allows you to top-up your future pension income on your own initiative, while benefiting from tax advantages in the current year. By making regular contributions to the plan, you build up a lump sum with interest, which you can then use when you retire. These contributions are subject to tax relief, which provides a particularly favourable environment for your savings.
There are 3 variations on the pension savings plan:
- Pension savings insurance. You benefit from guaranteed capital and a guaranteed return.
- The pension savings fund. The capital is not guaranteed but the returns may be higher.
- Long-term savings. You benefit from guaranteed capital and a guaranteed return.
The fourth pillar
The fourth element is the individual savings plan, which has no tax advantages.