Compulsory employer investment returns and the option of early retirement are two examples of benefits in Belgium, but don’t appeal to everyone’s taste, says Victoria Furness
If you read nothing else, read this …
- Income tax is high in Belgium – 50% for top-rate taxpayers – and employers pay around 35% in social security contributions.
- Since 1 January 2005, employers pay tax on a company car based on its CO2 emissions, regardless of the distance travelled.
- New pensions legislation aims to boost take-up among blue-collar workers, encourage more staff to invest in annuities rather than receive a lump sum payment and force employers to give a 3.25% guaranteed return on defined contribution schemes.
- Medical insurance is a popular employee benefit, despite insurers increasing premiums to cover rising healthcare costs.
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Agatha Christie’s fictional Belgian sleuth, Hercule Poirot, was probably too busy solving crimes to worry about taxes or benefits. But for most Belgians, the high rate of income tax – the majority of senior employees pay the higher rate of 50% – and recent changes to pension legislation are growing concerns.
In line with UK trends, some organisations have moved from a defined benefit (DB) pension scheme to defined contribution (DC). However, this number is much smaller than in the UK, with around two-thirds of employers choosing to stick with their DB scheme. And new pensions legislation announced last year has also made DC schemes a less attractive option.
Under Belgium’s new pensions law, employers offering a DC scheme must provide a guaranteed investment return of 3.25%. While this provides some security for employees, not everyone thinks it is a good idea. Johan Heymans, general manager of Watson Wyatt Belgium, says: "It is a shame because it means that most pension funds are invested in a conservative way – often in bond returns – which do not always offer the best investment strategy."
Another of the key aims of the legislation is to encourage more people to save for their retirement. Consequently, as of 1 January 2010, employees in a pension scheme will no longer be able to surrender their contract and take a lump sum before the age of 60. Werner Keeris, senior employee benefits consultant at Aon Consulting Belgium, explains: "The legislation also introduces a new article that invites people to take a lump sum and invest it in an annuity with favourable tax rates."
One of the unique features of Belgium society is its pre-pension system, whereby an employee can take early retirement and receive an unemployment payment from the state and up to 80% of salary from their company until the retirement age of 65. Wilfried Van Messem, managing director of Heissmann Consultants Belgium, says: "It’s a popular benefit as it’s cheaper than keeping people on the payroll." He claims organisations often use the system as a way of reducing headcount. "But the government is under pressure to abandon [it] from the Treasury and the European Union."
Pensions are not the only benefit undergoing significant change. Company cars, which are immensely popular in Belgium, are now taxed on CO2 emissions rather than the car’s fiscal horsepower and distance travelled between home and work. Since January, this payment is required even if the car is leased or rented by the employee, and staff receive an allowance for the professional use of the car.
"Before an employer could get away with paying no social security contribution on the benefit-in-kind. Now an employer has to pay the minimum contribution of Eu250 per car each year," explains Van Messem. He anticipates more organisations will ask employees to help cover the extra cost as a result.
Despite the CO2 tax, take-up for company cars is likely to remain high, not least because employers and employees alike are keen to minimise the amount of tax they pay. With the tax situation unlikely to change due to political differences within government, employee benefits will continue to appeal to many Belgians for the foreseeable future.