From 1 January 2025, the statutory minimum return guarantee for supplementary pension contributions will be 2.50%. The first increase of the minimum return guarantee since 2016. This is of course excellent news for your employees. But what does it mean for you as an employer? We aim to provide some answers in this blog.

What is the minimum return guarantee?

The Belgian Act on Supplementary Pensions provides that employers should guarantee a minimum return to employees upon retirement, or when they decide to transfer their reserves upon leaving employment. In supplementary pension schemes of the type ‘defined contributions’ or ‘cash balance’, the guarantee applies to employer’s contributions as well as employees’ personal contributions. In supplementary pension schemes of the type ‘defined benefit’, the guarantee is only applicable to employees’ personal contributions.

Why does the minimum return guarantee increase?

Since 1 January 2016, the minimum return guarantee has been determined annually on 1 June according to a formula laid down in law, taking effect on 1 January of the following year. The minimum return guarantee is equal to 85% of the average yield on 1 June over the past 24 months of the 10-year Belgian Linear Bonds (OLOs) rounded to the nearest 25 basis points. The guarantee has a lower limit of 1.75% and an upper limit of 3.75%. In January 2016, the minimum return guarantee amounted to 1.75%. Since then, due to the low interest rates in recent years, it remained unchanged. However, with market interest rates picking up again, the minimum return guarantee is being raised for the first time since 2016, to 2.50%.

Which actions to take as an employer

From 1 January 2025, the statutory minimum guarantee is 2.50% and you, as an employer, are obliged to guarantee this return upon retirement or upon transfer of reserves after leaving employment. The amount of the increase will be different depending on the methodology used by the pension plan to calculate the minimum return guarantee:

• For pension plans operating with the horizontal method, the new minimum return guarantee will only apply to future contributions. Thus, contributions made before 1 January 2025 will continue to accrue in accordance with the rate of the minimum return guarantee applicable at the time. In other words, contributions paid by you as an employer between 2016 and 2024 will continue to accrue at 1.75% and not 2.50%. The horizontal method is common for pension plans managed by an insurance company in Branch 21.
• For pension plans operating with the vertical method, the new minimum return guarantee will apply to both future and past Consequently, the employees’ entire reserves will generate a 2.50% return from 1 January 2025. The increase of the minimum return guarantee thus has a larger impact on pension plans using the vertical method. The vertical method tends to be used in pension plans managed by an insurance company in Branch 23 and by pension funds.

In conclusion, it is certainly useful to scrutinise both the methodology used for the pension plan and the current rate of return on your group insurance. To avoid unpleasant surprises such as underfunding, you can also ask your insurance company to provide an overview of possible shortfalls. In that way, you know where you stand, and you can consider spontaneously making up for those possible shortfalls, rather than await a potential underfunding bill.

For further information, please contact Julien Hick (+32 2 629 42 53 or Jhick@akd.eu) or Heleen Franco (+32 2 629 42 73 or Hfranco@akd.eu).