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In a general manner, the reform of supplementary benefits aims to maintain the level of benefits, to take greater account of wealth level and to reduce threshold effects. It will enter into force on 1 January 2021. In this context, the reform provides the possibility for insured persons, over the age of 58 and who have been dismissed by their employer, to remain affiliated to their pension fund. Explanations.
Situation before the reform
Until now, an insured person aged 58 or over who lost his job was automatically excluded from his employer’s pension fund and was obliged to transfer his pension savings to a vested benefits account. As vested benefits foundations generally pay out a lump sum capital and not pensions, the insured person's options for payment were therefore limited.
It should also be noted that recipients of unemployment insurance benefits are subject to compulsory insurance against death and invalidity with a state substitute scheme.
Impact of the reform
With this reform, a person who loses his job at the age of 58 or over will be able to continue to be insured by his employer’s pension fund with the same rights as those of other insured workers (interest rate, conversion rate, pension) if contributions are paid. This is provided for in the new Article 47a of the pension law (LPP).
Conditions
During the period of voluntary insurance with the pension fund, the insured, referred to as the "older unemployed insured person", will have the option to make the following contributions:
- Contributions that only cover death and disability, plus processing fees;
- Savings contributions to improve the pension benefits.
Members who opt to pay contributions are required to pay both employee and employer contributions. The pension fund is entitled to cancel insurance coverage if members do not pay contributions. As a reminder, these contributions are fully deductible from income tax.
Impact on pension regulations
Pension funds will have the possibility to include some adaptations in their regulations regarding the maintenance of insurance:
- Possibility of continued insurance as from the age of 55;
- Possibility of maintaining occupational pension provision or old-age pension provision alone for a salary lower than the last insured salary.
Termination of insurance and benefits
- On the occurrence of the risk of death or disability or on reaching the ordinary retirement age: If the optional continuation of insurance has lasted more than two years, benefits are paid out compulsorily in the form of a pension unless other provisions are laid down in the regulations of the pension fund. Retirement benefits must be paid no later than when the unemployed person reaches the ordinary retirement age set in the pension fund regulations. It is therefore not possible to postpone retirement in this context.
- In the event of new employment: If the insured person enters a new pension fund, the previous pension fund must pay the termination benefit to the new institution to the extent that it can be used to purchase the full regulatory benefits. Continued insurance coverage ends if more than two-thirds of the termination benefit is transferred as such.
- In the event of termination by the insured person: the older unemployed insured person may also decide to terminate the continuation of his insurance at any time.
In accordance with the new Covid-19 Act, this possibility of continued insurance coverage will also be offered retroactively to employees who were dismissed after the age of 58 as of 31 July 2020. This reform offers an interesting alternative for so-called older unemployed insured persons whose employment relationships have been dissolved by the employer, who until then could only turn to vested benefit accounts. However, this solution could be costly if the pension funds do not provide for more flexible adjustments in their regulations.
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