In the 2020 coalition agreement, it was agreed that the FSMA would conduct an investigation into the costs charged in the second and third pension pillars. The second pillar is the pension that you build up through your employer or as a self-employed person. This can be done through insurance or through a pension fund. The third pillar is individual pension savings, where you enjoy a tax benefit of 30 percent (contribution up to 1,020 euros per year) or 25 percent (contribution up to 1,310 euros per year), depending on how much you deposit. This can be done through a pension savings insurance or a fund.
While the cost structure of the funds is quite transparent, it is completely unclear to members of an employer’s group insurance how much costs are deducted. The report that the FSMA presented on Wednesday provides clarity for the first time in the costs charged in the two pillars. The figures refer to the year 2020.
In that year there were just over 6 million members in the second pension pillar through insurance. Please note, this is about plans, not about Belgians, as most compatriots have multiple pension plans running (with former employers). This can be done through eight different formulas, of which the group insurance for employees and the VAPZ, the Free Supplementary Pension for the Self-Employed, are by far the most popular. Within each of these formulas, branch 21 insurance is mainly used, which provides a capital guarantee.
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The research shows that the weighted average entry costs – according to invested assets – for an employee are 2.87 percent and that for a self-employed person is 3.06 percent. The annual management costs average 0.04 percent for the employee and 0.05 percent for the self-employed. But behind those averages there are big differences.
If we only look at the group insurance policies that companies have in place, one in ten charges higher entry costs than 4.9 percent. The differences are even greater among self-employed people. For the popular VAPZ, the entry costs are higher than 7.49 percent in 10 percent of the cases. In the less common individual forms of supplementary pension accrual for the self-employed or employees, the entry costs in the second pillar even amount to more than 14 percent. Names of insurers are not mentioned in the report.
Third pillar
The FSMA notes the same major differences in the third pillar of pension savings insurance. In 2020, there were approximately 3.3 million pension savings contracts through branch 21 insurance. The average weighted entry costs in those contracts were no less than 6.32 percent. For 880,000 contracts, the entry costs even rise to more than 10 percent. “That accounts for more than a quarter of the total contracts,” the FSMA writes in its report. Just over half of the entry costs go to the intermediaries such as brokers who sell the products.
If we only look at the group insurance policies that companies have in place, one in ten charges higher entry costs than 4.9 percent.
A small but increasingly large group of Belgians is building up a supplementary pension through branch 23 insurance, a fund that invests in shares, bonds or other financial instruments. There the proportions are rather reversed. The average entry costs in the third pillar are lower (2.83 percent) than for branch 21 insurance, while the average management costs (2.34 percent) are significantly higher. Branch 23 insurance policies, unlike most branch 21 insurance policies, do not offer capital protection.
FSMA warns against incorrect interpretations of the costs. ‘Anyone who pays 15 percent entry fees and 0.5 percent management fees can have more capital left after 30 years than someone who pays 0.5 percent entry fees and 2 percent management fees.’ it says. For this reason, the regulator developed a tool that maps the impact of costs on the pension savings pot.
Furthermore, European regulations give the supervisor the authority to take action if excessive costs are charged. “We have already withdrawn products from the market in the past,” says chairman Jean-Paul Servais. Two Royal Decrees will also require pension products to report on costs in a uniform manner in the future. According to Pensions Minister Karine Lalieux (PS), further steps can be taken if it turns out that the current measures are not working sufficiently. From 2026, the transparency law will also provide a pension overview that must inform members in the second pillar about the costs.
