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A second pillar of pension for civil service contractors?

A second pillar of pension

A second pillar of pension for civil service contractors?

The public sector pension before the March 30, 2018 law

Government employees receive pensions based on their status as a civil servant with the pension benefits differing between statutory staff members and civil service contractors. The latter are defined as people working for public institutions under a contract of employment without any statutory relation. Just like employees in the private sector they are entitled to a legally defined first pension pillar. The difference lies in the additional second pension pillar that is offered to most private sector employees but not to civil service contractors.

In the past, career paths in the public sector meant that a civil service contractor would often evolve towards an appointment as a statutory staff member. This appointment comes with a transition from the above mentioned first pensions pillar to one specifically designed for the public sector. This first pension pillar for the public sector not only differs in composition compared to its private sector counterpart, but also works retro-actively. Therefore statutory staff members would receive a pension as defined in the first pension pillar for the public sector based on their entire career within the government, including the years prior to their appointment when they worked as a contractor.

As appointments become less and less frequent, civil service contractors often end up remaining in a pension scheme that includes only the first pension pillar for the private sector. As they don’t receive a second pension pillar, and less frequently evolve towards the first pension pillar for the public sector, they find themselves at a retirement pension level that is not only lower than statutory staff members but also lower than private sector employees.

The new pension landscape of the public sector

To counteract this inequality in pensions, the law of March 30, 2018 has introduced:

1. A mixed pension for the civil service workers composed of:

  • A right to a first pension pillar of the private sector for the years worked under a contract of employment.
  • A right to a first pension pillar of the public sector for the possible years after appointment as statutory staff.

2. Changes in the Law on Complementary Pension (LPC/WAP) in order to better reflect the specificities of the public sector

3. Incentives regarding the creation of an (externalized) second pillar of pension for civil service contractors (under certain conditions).

Advantages of an occupational pension scheme

The creation of a second pillar of pension for civil service contractors could introduce various advantages, including the following:

Social equity requirement - a complementary pension scheme for civil service contractors would lead to a higher pension, reduce inequalities and provide them with a better quality of life when retired.

Reduction of the potential “responsibility contribution” - under certain conditions, local authorities paying a 'responsibility contribution' may deduct a part (maximum 50%) of the premium paid into the supplementary pension plan from the contribution.

Potential grant of a regional bonus for the constitution and development of a second pension pillar for contract staff.

How can KPMG help you?

Designing a fitting pension plan for your entity is both challenging and time consuming. As an independent advisor, we are here to guide you through the process and help you design a scheme, suited to your entity. Our team will help you define the key criteria which will help you select a suitable pension scheme from the ones provided by insurers.

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