Since the introduction of the Belgian Supplementary Pensions Act (Wet op de Aanvullende Pensioenen) in 2004, every pension provider has to factor in a statutory return guarantee, better known as the ‘employer’s guarantee’, which is unique in Europe.
It was set at the time at 3.75% for employee contributions and 3.25% for employer contributions. A maximum of 5% may be deducted as management expenses from the contributions paid by the employer.
As from 2016, the level of that statutory return guarantee has been linked to government bond yields. At the end of the year, the Belgian Financial Services and Markets Authority (FSMA) calculates the guarantee that will apply to the premiums paid during the following year. This calculation is based on the 24-month average yield on Linear Bonds (OLOs) with a ten-year maturity (see Newsroom, 18/05/2016). The rate to be guaranteed will then equal 85% of that average OLO yield, rounded off to 25 basis points, subject to a minimum of 1.75% and a maximum of 3.75%.
Because of the historically low interest rates on OLOs from 2016 to 2022, the minimum employer’s guarantee has been at the minimum of 1.75% since 2016. However, a turnaround can be seen from mid-2022, with the continued upward trend leading to yields around 3.60% in October 2023.
As the annual calculation is based on the average of the 24 months to July, the minimum return on 2024 deposits will still be ‘limited’ to the minimum of 1.75%. But if current OLO yields continue, the minimum guarantee is expected to rise to between 2.50% and 2.75% in 2025. Although this increase may lead to additional pension obligations for employers, most insurers are fortunately also increasing their interest guarantees, which will then at least partially compensate for any shortfalls.