The Belgian Federal Government has drafted a Royal Decree modifying the system of Overseas Social Security substantially. The changes will apply to the pension pillar, which constitutes the cornerstone of Overseas Social Security. The Royal Decree was scheduled to enter into force on 1 February 2017, but we were recently informed by the authorities that this date will be pushed back to a later date (1 April 2017 at the earliest). Please find below some additional information, as well as two important action points to be taken into consideration.
Some further clarification on the changes to the Overseas Social Security system
The Draft Royal Decree is expected to:
- decrease the pension interest rate from 3.75% to 2%.
- eliminate the differences between the male and female pension entitlements by introducing unisex mortality tables.
This means a decrease in pension benefits of almost 50%. In order to compensate for this decrease and safeguard the same pension benefit upon retirement, the current contributions need to be multiplied by factor 1.9. To this end, the Belgian National Social Security Office (NSSO) will also increase their minimum and maximum contributions accordingly (to be multiplied by 1.9):
- The minimum monthly contribution of EUR 249.60 will be increased to EUR 312.
- The maximum monthly contribution of EUR 998.55 will be increased to EUR 1,897.25.
In an informative note released by the NSSO, the above changes were illustrated with a numerical example.
The NSSO takes the example of an employee who, under the Overseas Social Security system, paid monthly minimum contributions of EUR 249.60 for a period of 45 years, as from age 20. Under the current rates and scales (i.e. before the Royal Decree enters into force), this employee will be entitled to an annual pension benefit of EUR 15,443 (for a female employee) or EUR 15,913 (for a male employee). Under the future rates and scales (i.e. for contributions paid from the RD’s entry into force), the same monthly contributions would result in an annual pension benefit of EUR 8,252 (for both female and male employees).
Action points for your company
In this respect, we would like to draw your attention to two action points for the future.
Firstly, it is important to verify whether continuing/increasing the contributions is still beneficial, both from a cost perspective for the employer and with respect to the final outcome for the employee. Our simulations have led us to conclude that, in many cases, it is more beneficial (from both an employer and an employee point of view) to compensate expatriated employees for the future changes by applying alternative remuneration methods. Consequently, it is advisable to initiate an open discussion with your expats on their salary packages and look at alternative remuneration methods.
Secondly, it is advisable to review the terms and conditions of the assignment agreements and/or the provisions of expat policies in order to verify your company’s contractual obligations following the changes announced.