Chapter 7 Pension System
The Belgian pension system is made up of three main pillars plus a fourth secondary one.
7.1 State Pension (First Pillar)
The first pillar is based on the statutory pension, established under a statutory social security scheme and based on the principles of distribution and solidarity. It benefits all workers, whether they are statutory or contractual agents, employees or self-employed. In addition to retirement pensions, the first pillar also includes survivors’ pensions allocated to spouses and the income support for the elderly who do not have sufficient means.
State pensions are financed by a “pay-as-you-go system”. That is, today’s workers, through their compulsory contributions, pay the pensions of current retirees. This means that pensions of the currently retired are financed by contributions on wages of the currently employed (and not by their own savings).
While in the past there was a slight discrepancy between the pension age of men (65) and women (2003-2005: 63; 2006-2008: 64), nowadays, the official state pension age is 6510 for men as well as for women. However, for a number of professions (e.g. miners, seafarers), exceptions to this rule apply. More in general, the average effective retirement age is considerably lower, mainly due to systems of early retirement and supplementary unemployment benefits for older unemployed.
7.1.1 Old age (retirement) pension
In the state pension system for the age, three schemes are in place, depending on whether the retired person was an employee, a civil servant or a self-employed. For those workers who have fallen into more than one of these categories during their career, the rights acquired in the various systems are combined. Periods of involuntary unemployment (unemployment, sickness) are also taken into account.
7.1.1.1 Employees in the private sector
7.1.1.1.1 Computation
This system applies to salaried workers who have been employed in Belgium under an employment contract and to all contractual and temporary civil servants. Given that a “full career” is considered to be of 45 years, the amount of the employees’ pension (P) is calculated on the basis of three parameters: the length of the professional career, the remuneration received during the whole career (R) and the family situation. Specifically:
- for singles or married individuals without a dependent spouse: \(P = R \times 0.6 \times 1/45\)
- for married individuals with a dependent spouse: \(P = R \times 0.75 \times 1/45\)
It is worth noting that, because of upper ceilings on the pension amounts11, the effective replacement rate for high earners is considerably lower.
The amount obtained through the formulas here above should be then reduced of the contributions that are due on retirement and survival pension benefits (see Section 12.1).
Finally, eventual bonuses for long careers should also be considered. The pension bonus is an advantage that retired salaried workers receive in addition to their retirement pension if they have continued their professional activity beyond the first possible starting date for pension. This pension bonus has been abolished since 01/01/2015, but it is available for those who started building it before 201512. The daily amount of the bonus for the period between 01/01/2006 and 31/12/2013 was €2.4868, while from 01/01/2014 it follows the following scheme (Table 7.1).
| Reference period | Amount in €/day |
|---|---|
| During the first 12 months | 1.6236 |
| From the 13th to the 24th month | 1.8401 |
| From the 25th to the 36th month | 2.0566 |
| From the 37th to the 48th month | 2.2730 |
| From the 49th to the 60th month | 2.4895 |
| From the 61st month | 2.7603 |
7.1.1.1.2 Financing
For the salaried workers scheme, it is the ONSS (National Social Security Office) that collects the contributions from both employers and workers. Specifically, of the total social contribution that is owed based on gross earnings13, 7.50% and 8.86% are paid for pensions by employees and employers respectively. The ONSS also collects the afore-mentioned contributions that are retained on pensions themselves (3.55% plus the solidarity contribution).
A subsidy to pension is also provided by the State, but its relative share has been constantly decreasing in favour of an additional alternative source of financing based on VAT and other excise duties.
The body paying the pension for salaried workers is the National Pensions Office (ONP).
7.1.1.2 Self-employed
7.1.1.2.1 Computation
As in the case of employees, the self-employed or the assistant of the self-employed must have a career of 45 years to claim the benefit of a full retirement pension. Also the parameters taken into account for the calculation of the amount of the legal pension for the self-employed are identical to those used in the salaried workers scheme (career, professional income and family situation). However, certain conditions differ for income received before and from 1984. Therefore:
- for singles or married individuals without a dependent spouse: \(P = R \times 0.6 \times 1/45\)
- for married individuals with a dependent spouse: \(P = R \times 0.75 \times 1/45\)
Where R is equal to the real professional income, for the years from 1984, and to a lump sum income before 1984.
7.1.1.2.2 Financing
For the self-employed, contributions for pensions are collected by the INASTI (Institut National d’Assurances Sociales pour Travailleurs Indépendants), which is also responsible for granting certain specific benefits to the self-employed, such as insurance in the event of bankruptcy or serious illness.
Funding for the independent sector comes mainly by social contributions paid by the self-employed, assistants and assisting spouses14 for the benefit of the current retirees, according to a distribution system based on intergenerational solidarity.
As for salaried workers, both a subsidy from the State and the alternative financing from VAT are foreseen.
7.1.1.3 Minimum Pension
Salaried and self-employed workers in the private sector who have worked for at least 30 years15 are entitled to a guaranteed minimum pension. The minimum monthly guaranteed full pension is €1,291.69 / €1,614.10, depending on whether the pension is granted to a single individual or to one with a dependent spouse.
The full amount, however, is granted only after 45 years of career. If an individual does not have a full career of 45 years, (s)he receives the basic amount of the minimum pension €1,291.69 / €1,614.10, proportional to the career fraction16. In addition, while theoretically the principle “the longer the career, the higher the pension” is valid, the amount is capped at a maximum of 45 years of career.
Finally, should the proportional pension (calculated on the basis of real income) be more advantageous, it is this proportional pension which will be granted (and not the minimum pension).
7.1.1.4 Civil servants
7.1.1.4.1 Computation
This scheme concerns only statutory civil servants; contractual civil servants are covered by the pension scheme for salaried workers. This regime applies to all staff members, appointed on a permanent basis, of the State, the Regions and the communities, certain communes, the CPASs (Centres Publics d’Action Sociale) and inter-municipal associations.
In this scheme, two main aspects differ from the regime for salaried workers and self-employed. First, instead of the real remuneration received during the career, a reference salary corresponding to the average salary for the last five years is used. Second, the gross replacement rate is fixed to 75%, regardless of the family situation. Pensions in the public sector are therefore calculated according to the following formula.
\(RS \times N \times 0.75 \times 1/60\), where RS is the reference salary (the average of the last 5 annual salaries), N is the length of the career (capped at 45 years), 1/60 is the career fraction17.
Like private sector employees’ pensions, civil servants’ pensions are also subject to personal contributions (see Section 12.1). In addition, similarly to salaried workers, civil servants are also eligible for bonuses for long careers18 (if built before 2015) according to the scheme in Table 7.1.
7.1.1.4.2 Financing
For local and provincial staff, it is the ONSSAPL (National Social Security Office for Provincial and Local Administrations) that collects contributions; for all other civil servants, it is the State that is responsible for the collection of contributions (with the exception of health care, which is the responsibility of the ONSS).
There are four types of revenues that are allocated to civil servants’ retirement pensions. First, the solidarity contribution (same mechanism as the private sector); second, the personal contributions (personal contribution of 7.5% for statutory civil servants and 1.5% for individuals with management or supervisory functions); third, the equalization contribution, which is a personal deduction of 13.07% on the vacation pay of civil servants; fourth, a subsidy from the state.
The agency responsible for paying civil servants’ pensions is the Ministry of Finance.
7.1.2 Survivor pension
The survivor pension is granted to the spouse following the death of the person who has built up pension rights. A few additional conditions apply (the spouse has to be older than 45 and be married for at least one year, or have a dependent child, or be permanently disabled). Like the holder of a retirement pension, the beneficiary of a survivor pension may, under certain conditions, exercise a professional activity.
7.1.3 Income support for the elderly
A minimum pension is a right granted to all Belgian citizens who currently live in Belgium.
The income support for the elderly (Garantie de Revenus aux Personnes Agées - GRAPA - in French) is a financial aid scheme for the elderly (older than 65) who do not have sufficient means. It is an individual right, whether being married or not, but the amount can increase according to the actual family situation. Specifically, there is a distinction for persons living alone and those living with others at the same address (presumably couples). In fact, a person without a partner but living with (a) minor or adult child(ren) for whom child benefits are received and/or with relatives (descendants) is considered as living alone and she is eligible to receive the increased amount.
To benefit from the GRAPA, the income of the applicant must be below a certain threshold. The income is taken into account as follows:
- 75% of gross employment income other than self-employment income;
- Gross income from self-employment minus incurred expenses;
- Income from capital19;
- Income from real estate;
- 90% of the pension income (decreased of the paid alimonies);
- An additional €5,000 of gross income from employment and/or self-employment is exempt.
On the contrary, income supports, alimonies and child benefits are not considered. The base amounts for the income support for the elderly (thresholds below which elderly can apply for the GRAPA) are, as of 2020, €13,852.92 (€1,154.41 monthly) for people living alone and €9,235.32 (€769.61 monthly) for people living with a partner. The resulting income support is the base amount minus the income of the applicant, and it is paid by the ONP.
7.1.4 Early retirement pension
An early retirement pension can be granted at 60 provided that the individual is jobless and has more than 40 years of professional career. In fact, the early retirement pension is actually an unemployment benefit. It is a “bridge” between losing a job before the (legal) age of retirement and the actual retirement. Therefore, a part of this benefit is financed through the unemployment legislation and a part by the employer. Also, the early retired are exempt from the obligation to actively seek work, which is common for the “normal” unemployed.
Early retirement benefits are paid net of social insurance contributions (see Section 12.2).
From 2015 on, conditions for early retirement have become stricter.
7.2 Complementary Pension (Second Pillar)
Second pillar pensions provide a complementary pension to employees. They are built via the employer – through an insurance group or a pension fund – and they are focused on capitalization. That is, they are granted to workers bound by an employment contract on the basis of compulsory payments determined in a pension regulation or in a company/sectoral pension agreement. Therefore, contrary to state pensions (pay-as-you-go), complementary pensions are fully funded. Yet, similarly to retirement pensions, at the legal pension age, the reception of the capital is subject to some deductions (social insurance contribution of 3.55% for the funding of the sickness and disability insurance and solidarity contribution), while it is not taxed at the time of constitution.
Although it is voluntary, half of the Belgian working population takes part in a second pillar pension scheme, and its importance is increasing. It is worth noting, however, that second pillar pensions are not available to anyone. The non-profit sector, for example, is excluded and also statutory agents, with rare exceptions, cannot access it.
This pillar is based on the law on complementary pensions (LPC), whose objectives are:
- to democratise and integrate the different forms of existing complementary pensions for salaried workers (sectoral plans, business plans, individual pension commitments);
- to strengthen the protection of the affiliates and ensure that, at any time, the funding is sufficient;
- to stimulate and democratise complementary pensions and to promote solidarity through tax incentives.
The vast majority of second pillar pension plans are company plans, which mainly concern employees. Unlike sectoral plans, these plans rarely include a solidarity component as provided by the LPC.
Historically, there has been much debate over the respective roles of statutory pensions on the one hand, and of complementary pensions on the other. Nowadays, this controversy is milder as the majority of the actors claim both for the strengthening of the first pillar and for the democratisation of the second pillar. Nevertheless, some analysts still observe that a strong and sufficient first pillar should not need in principle a second pillar.
7.3 Individual Complementary Pension (Third Pillar)
The third pillar includes individual complementary pension outside the professional framework. The Legislator encourages third pillar pensions by granting fiscal advantages both at the moment of constitution and at the moment of reception.
In principle, the third pillar is not really a pension but rather individual savings. It can be constituted at an insurance company, via a “life insurance” or via a “pension savings insurance”, or at the bank, via a “pension savings account”. In the first case, the subscriber will benefit from a tax reduction, calculated with a special average rate (between a maximum of 40% and a minimum of 30%), on the amount of the premium paid20. In addition, with the insurance company, the minimum guaranteed return per year is known in advance, and some insurers also offer the possibility of obtaining a profit share which depends on the results of the insurer itself. On the contrary, the pension savings bank account does not benefit from any guaranteed minimum return per year. With the bank account, pension savings are used to purchase shares of a bond fund, so the returns depend on the evolution of the stock market.
7.4 Pension from capital accumulation (Fourth Pillar)
The fourth pillar, although it does not have a proper definition, consists of all the financial and/or real estate assets accumulated alongside the other pillars (e.g. savings accounts with interests, shares with dividends, bonds with interests, owned houses that are rented).
7.5 Modelling Assumptions
Only the state pension (first pillar) is computed.
Social security contributions that are due on pension benefits for employees in the private sector and civil servants are explained in detail in Section 12.1, but they are computed within the code that calculates pensions.
The pension bonus is not computed.
7.6 Module input
7.6.1 Variables
| Name | Description | Database |
|---|---|---|
| dep_family | does the pensioner have a dependent family (yes/no) | Other |
| dep_spouse | if the retired has a dependent spouse or not (yes/no) | Other |
| ec_PL140_ss | what type of employment contract did you have? | Other |
| loc_p_sc | Self-defined current economic status | SILC |
| ps_PL040_ss | what was your professional status? | Other |
| yw_PL200_ss | number of years worked | Other |
In addition, the variables pens_ref_sal_civ_serv (i.e. reference salary of civil servants, which is the average salary over the last 5 years) and pens_carrer_rem (i.e. remuneration over the whole working career) should be computed through reverse engineering from IPCAL data.
7.6.2 Parameters
| Name | Description | Value (2020) |
|---|---|---|
| pens_civ_serv_ni | civil servants / normal increment | 0.0166666666666667 |
| pens_coef1 | adjustment coefficient 1 (no dependent spouse) | 0.6 |
| pens_coef2 | adjustment coefficient 2 (full career) | 0.0222222222222222 |
| pens_coef3 | adjustment coefficient 3 (dependent spouse) | 0.75 |
| pens_min_am1 | minimum pension / amount (monthly) 1 | 1291.69 |
| pens_min_am2 | minimum pension / amount (monthly) 2 | 1614.1 |
| pens_min_yr | minimum pension / years | 30 |
| ssc_nly_pens_ca1 | non-labour income / pension / contribution amount 1 | 43.1 |
| ssc_nly_pens_cr1 | non-labour income / pension / contribution rate 1 | 0.0355 |
| ssc_nly_pens_cr2 | non-labour income / pension / contribution rate 2 | 0.5 |
| ssc_nly_pens_cr3 | non-labour income / pension / contribution rate 3 | 0.015 |
| ssc_nly_pens_cr4 | non-labour income / pension / contribution rate 4 | 0.02 |
| ssc_nly_pens_thr1 | non-labour income / pension / threshold 1 | 1500.36 |
| ssc_nly_pens_thr1_df | non-labour income / pension / dependent family / threshold 1 | 1778.14 |
| ssc_nly_pens_thr2 | non-labour income / pension / threshold 2 | 2594.45 |
| ssc_nly_pens_thr2_df | non-labour income / pension / dependent family / threshold 2 | 2999.51 |
| ssc_nly_pens_thr3 | non-labour income / pension / threshold 3 | 2674.68 |
| ssc_nly_pens_thr3_df | non-labour income / pension / dependent family / threshold 3 | 3092.26 |
| ssc_nly_pens_thr4 | non-labour income / pension / threshold 4 | 2873.57 |
| ssc_nly_pens_thr4_df | non-labour income / pension / dependent family / threshold 4 | 3287.31 |
| ssc_nly_pens_thr5 | non-labour income / pension / threshold 5 | 2903.51 |
| ssc_nly_pens_thr5_df | non-labour income / pension / dependent family / threshold 5 | 3321.55 |
7.7 Module output
| Name | Description |
|---|---|
| b_pensions | amount of the pension (net of social security contributions) |
| t_ssc_nly_pens | amount of the social security contributions on pensions |
7.8 References
[] Le système des pensions en Belgique : solidarité ou responsabilité individuelle ? 2010. URL: http://ep.cfsasbl.be/IMG/pdf/CFS_EP_ANA_systeme_belge_des_pensions_solidarite_ou_responsabilite_individuelle.pdf.
[] Service fédéral des Pensions. 2020. URL: https://www.sfpd.fgov.be/fr.
[] J. Derboven, Z. Rongé, S. Van Houtven, et al. “EUROMOD COUNTRY REPORT, BELGIUM (BE) 2016 – 2019”. In: n.d. (2019).
It will be 66 from 2025 and 67 from 2030.↩︎
When the total annual salary is above a certain ceiling, the salary used to calculate the pension is limited to this ceiling. Therefore, the principle “higher salary for higher pension” only applies until a certain ceiling salary, which is set on an annual basis. For 2019, the ceiling salary was €58,446.94 for a full year.↩︎
See: https://www.sfpd.fgov.be/fr/montant-de-la-pension/calcul/bonus-de-pension.↩︎
See the Fact Sheet “Self-employed social contributions”.↩︎
Each of these years must have at least 208 workdays.↩︎
For example, if an individual worked for 35 years, the minimum amount of his pension will be: 35/45 × €1,291.69 (single rate) / €1,614.10 (household rate).↩︎
Percentage that represents the part of the reference salary that is granted for each year of eligible service.↩︎
See: https://www.sfpd.fgov.be/fr/montant-de-la-pension/calcul/bonus-de-pension.↩︎
The first €6,200 are exempted; from €6,200 to €18,600, only 4% is considered; beyond €18,600, 10% is considered.↩︎
Yet, unlike pension savings insurance, on individual life insurance, an insurance tax is due up to 1.1%.↩︎