Age catching up with you? It's never too soon to think about your retirement

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Belgians retire at around 61 years of age on average, while our life expectancy is increasing. What's more, the active population is shrinking, which means there are fewer people to help fill the pension pot. Reason enough then to start thinking about your retirement savings today. It may be better to leave the leisure pursuits and travel plans to one side for a moment, and focus on how you will fund your retirement income.

Unless you have a full service record as a senior civil servant, your state pension will probably be a lot lower than your final salary. According to calculations by the OECD, the average state pension in Belgium is more than a third less than the final salary. For this reason, now is a good time to take action to ensure you can maintain your standing of living after retirement.

8 financial tips to ensure you can enjoy your retirement to the max when the time comes

1. Start saving for your retirement

You can start saving towards your pension as soon as you reach adulthood and have a taxable income. In most cases, you will deposit a sum annually into a pension savings fund. These funds are managed professionally by a team that invests the money in shares, bonds, real estate and more. Once you retire, you will receive the money and any proceeds as a benefit.

You don't have to save towards your pension every year, but it is wise to do so. The big advantage is that the government will contribute to any pension savings you make. You will benefit from an annual tax break of 25% to 35% of the amount you save towards your pension (as long as you meet all the conditions). The benefits in the income year 2020 are:

  • either you deposit up to €990, resulting in a tax reduction of 30% (a tax break of €297); or
  • you deposit up to €1,270, resulting in a tax reduction of 25% (a tax break of €317.50).

2. Find an employer with a collective pension plan

If you are an employee, it could be a smart idea to find an employer that offers a collective pension plan. In that case, your employer will contribute a monthly amount to a pension savings fund, for instance. In most cases, your employer will also pay part of your own salary into that fund, meaning you work together to grow your retirement pot. An added bonus is that in Belgium, you are entitled to a statutory minimum return. In previous years, this was around 1.75%.

If your employer doesn't offer a collective pension plan, don't worry. Since 2018, you can also choose to enrol in a free supplementary pension scheme for employees (VAPW/PLCS). This option is intended for anyone who has no or little pension provision at all. It is up to you to fund the contributions, but your employer withholds the amounts from your net salary and pays them into your pension savings plan. You can benefit from an additional tax reduction of 30% on your deposits in addition to that on your pension savings.

Similarly, if you are a contractual civil servant, your employer may enrol you in a supplementary pension scheme. This is an option that was launched recently.

3. Self-employed? Opt for a VAPZ/PLCI

On average, the statutory pension of a self-employed person is quite a bit lower than that for an employee (and certainly lower than that for the average civil servant). If you are self-employed, you would be wise to set aside an even greater buffer for your retirement fund. Although the self-employed cannot enjoy the benefits of a collective pension plan, there are some tailor-made solutions such as a free supplementary pension for the self-employed (VAPZ/PLCI). This has many advantages:

  • The contributions are 100% tax-deductible as a professional expense.
  • Your net income is reduced, meaning that you will pay lower social security contributions.
  • Just like with a collective pension plan, you benefit from a guaranteed minimum return.

4. If your employment status changes, don't forget about your pension.

A greengrocer who's also a qualified nurse? Or a career spanning 19 different jobs? This is by no means an exception these days, as we are becoming increasingly mobile in our jobs. And we are happy to move around between different employment categories, too.

However, before you change employment status, it is worthwhile checking the consequences for your pension. As a civil servant, you will generally have a higher statutory pension than as an employee. And the self-employed generally have the lowest statutory pension. Even if you may have a more attractive salary if you change employment status, check the value of the overall remuneration package first.

5. Savings accounts: the good times are a distant memory

The interest on savings accounts has been at a historic low for many years now. And this looks set to continue for some time to come. At the same time, inflation is higher than the interest on your savings. The money in your savings account generates a modicum of interest, but the prices of goods and services are rising many times faster. In other words, your weekly spend on shopping will buy you less and less. The return on your savings account has not kept pace with the reduction in purchasing power for several years.

If your profile allows it, you may be better off investing any money that you won't be needing in the short to medium term. Although it exposes you to risk, historically it generates a potentially higher return than savings, even when you factor in all the stock market dips. It is important to focus on the longer term, preferably at least seven years, so that your investments have time to recover if the stock markets go through a period of heavy weather. Investing with Keytrade Bank is possible from €25 a year.

6. Buying your own home rather than renting

If you rent your home during retirement, this will take a big chunk out of your pension. Buying your own house or apartment is usually a good idea: there's no rent to pay to a landlord, and you invest in your personal property. What's more, property prices in Belgium have been climbing for decades, which means that your property is likely to increase in value in the future. In addition, the interest rates on mortgage loans are still attractively priced. If you take out a loan, try to make sure it is paid off by the time you come to retire.

Looking to buy a house? Use our free mortgage calculator.

7. Don't retire too early

Although the statutory retirement age is currently 65 years of age, on average Belgian men retire at the age of 61.8 years and women at 60.5 years (source: OECD). There are a number of disadvantages to taking early retirement, with the main one being that you won't have a full state pension. But there are disadvantages for your collective pension plan, too. If you take early retirement as an employee, the pension you accrue through your collective pension plan will be reduced. If you work until your statutory retirement age, you will pay 10% tax on the benefits from your collective pension plan. But if you retire early, you will pay 16.5% tax.

8. Work full-time or choose equal status

Working part-time will always result in a smaller pension than working full-time, even if you are employed in a part-time job and earn as much as a colleague with a full-time job. If you want to work part-time (even for a short period), time credit or thematic leave (parental leave, palliative leave, etc.) may prove an interesting alternative. In that case, the period that you don't work can be given equal status and therefore count towards your pension accrual.

The situation is different for civil servants. Their employment status generally makes it easier to continue to accrue pension entitlements. For the self-employed, full-time or part-time working makes no difference to the pension accrual as the net taxable professional income and the family composition are the key factors in the pension calculation.

Note that these decisions shouldn't be taken lightly, and you should seek all the necessary information before switching employment status. Conditions and exceptions may apply.

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