The Belgian government has been considering pension reforms and pushing for more registration of cross-border pension funds in the country.
In 2015, Belgian pension funds returned 4.4%-4.9% on average, figures from the country’s pension scheme association PensioPlus and consultant Mercer show.
The year before, a double-digit figure was recorded (11.86% according to PensioPlus).
Kristof Woutters (pictured), global head of Investment Solutions and Financial Engineering at Candriam, points out that the performance is linked to that of equity investments since Belgian pension funds allocate 35%-40% to equities.
Noting a shift in fixed income allocation, Woutters says local pension funds have significantly reduced their exposure to government securities in favour of investment grade corporate bonds, and now tend to go ever more for riskier assets such as high yield bonds and emerging debt.
Reforms ongoing are expected to mostly impact the first pillar (state pensions) and indirectly the second pillar, in which dwell defined contribution schemes.
“On average, the first pillar does not cover enough for individuals to sustain their lifestyle when they retire. Second and third pillars pensions are much needed,” observes Hugo Lasat, chairman of the Belgian asset management association (Beama).
“Consciousness has been rising for quite some time now around the pension issue. All generations understand it has become vital to contribute to an additional pension scheme,” he adds.
Belgium’s pension minister Daniel Bacquelaine has set an objective of tripling the share of the total salary mass contributing to the second pillar from 1% currently to 3%.
The issue there is dealing with working sectors. Until recently, we had two ‘statuses’ in Belgium regarding pensions: workers and employees.
“A majority of employees have historically been granted a second pillar pension plan. The participation of workers in second pillar pension plans is more recent. Since the first pillar covers 65%-75% of a worker’s salary, their pension gap is not that huge, explaining partly the weak contribution to the second pillar.
In other categories, social workers, nurses, doctors, for example, people want to contribute more to the second pillar,” Woutters says.
A third pillar includes Belgian pension savings funds. Some €16.21bn were invested in those funds at end September 2015 and two-thirds of the Belgian active population (1.3 million Belgians) hold one in their portfolio.
“Belgian investors have started favouring a long-term stance regarding the management of their assets instead of a short-term view. We estimate traditional Belgian savings accounts include some €260bn in assets globally,” Lasat argues.
“Belgians holding those accounts are not likely to need €260bn over a short-term period, so we might think to move part of these assets to second or third pension pillars. That could be a way to resolve the pensions issue in Belgium.”
He says “a brilliant idea” would be to consider a possible extra contribution to a pension fund, whether by sector or by individual within a salary package.
Lasat suggests Belgium might copy the Australian superannuation scheme in which those entering the workforce have to contribute to a pension fund.
Last November, Bacquelaine said he wanted to make the country more attractive for foreign cross-border pension funds.
Both Woutters and Lasat suggest Belgium’s OFP vehicle for gathering administration, accounting, asset management and reporting services is the most suitable for foreign crossborder pension funds.
Woutters says that the OFP is wisely regulated and cautious. He highlights that money can be saved by companies through the global structure of the OFP and governance fees.
Woutters warns, however, nationalist reactions can emerge, notably from the Netherlands.
But Lasat believes Dutch pension funds should not feel threatened.
But UK firms are constrained by the European Directive that applies regarding cross-border pension funds in Europe : capital must be fully invested all the time.
And Belgium’s lobby to modify it has not borne fruit yet.