Payout of a group insurance policy upon legal retirement

This article concerns the group insurance (GV) for employees.

Below you can read about the taxation of the payout, about how the GV payout takes place upon retirement, read more here.

Tax on payout of the GV.

The capital of your GV is, after deduction of the solidarity and special social contributions (together max. 5,55%), taxed at a rate that depends on your age at the time of payout.

Please note:

• in practice, the tax rate above results in a payroll withholding tax that is slightly higher. For example, the pension institution applies a withholding tax of 10,09% for the 10% tax. The 16,5% then likewise becomes a withholding tax of 16,66%. And so on. This is because any municipal taxes are taken into account.
• in Branch 21 contracts where the payout is split into a capital sum and a profit share, the profit share is not subject to the tax; in that case only 5,55% (referred to above) is deducted.

Conditions for the 10% final taxation.

As indicated in the table above, you may be entitled to 10% final taxation if you meet a number of conditions:

1. You must have reached the legal retirement age

The 10% rate is linked to the legal retirement age. Concretely, you currently must work until age 65 to benefit from the favourable 10% taxation. Due to the postponement of the retirement age, this only becomes possible from age 66 if you were born after 31.12.1959, but before 01.01.1964, and from age 67 if you were born after 31.12.1963.

2. Or you must have a full pension career.

You can also benefit from the 10% rate before the legal retirement age if you have a full pension career of 45 years. If you are unsure whether you meet this career condition, even after consulting your MyPension file, you can request a career overview certificate from the FPD to verify whether you have completed a full career for the application of the favourable rate of 10%.

See below for a further definition of "full career".

3. And you must have remained active until that moment

It is important that you also remained active until the moment you meet the conditions under 1 or 2. In this respect, it is sufficient that you were affiliated with a social insurance fund three years beforehand and that, during that period, social contributions were also paid for you (as a primary occupation in the case of self-employed persons). See below for a further definition of "effectively active"

For an example calculation (for self-employed persons, but largely the same for employees), see here on this website.

What if your policy expires before you draw your pension?

Since 01.01.2016 (wet 18.12.2015, BS 24.12.2015), requesting the payout of your second pillar pension has only been possible from the moment you actually retire. A withdrawal before age 65 is therefore only still possible if you also actually take early retirement. If, for example, your GV has an expiry date of age 60, and you do not draw your pension at age 60, then this policy will be automatically extended until your legal retirement age, being 65, 66 or 67 years (cf. infra). This policy will then indeed be paid out as explained below.

What if you draw your pension before your policy expires?

It works in both directions. If you draw your pension on a date before the end date of your policy, then your policy must indeed be paid out. This is the case even if this policy would otherwise still run for several more years (and perhaps even under attractive insurance conditions).

Exception to this rule. For persons born before 1962, a temporary transitional arrangement is provided. They can still draw their supplementary pension before actually retiring. The precise age at which this is possible can be found in the table below. For example, if you were born in 1961, you can still request an early payout at age 63, even if you are not entitled to early legal retirement at that time.

Please note:

• in this case, your pension agreement must also provide for a withdrawal before you retire, or before the scheduled expiry date.
• the favourable early-payout measures are absolutely void for members born on or after 1 January 1962

What if you continue working after your legal retirement age, without drawing your pension?

As long as your policy is running, you may postpone the withdrawal if you continue working after the legal retirement age without drawing your pension.

What should we understand by the notion of 'full career according to the applicable pension legislation'?

A 'full career according to the applicable pension legislation' must currently be understood as: a career of at least 45 years, in which each year meets the condition to be taken into account for early retirement. What does this mean in concrete terms?

• The sum of the years that count towards early retirement must be 45 years. For self-employed persons, these are years in which the person concerned worked at least two quarters. Each quarter counts as 78 days (312 days / 4).
• for employees and civil servants, these are years with employment of at least one third of a full-time work schedule: 104 days (312 days / 3).

When a person concerned was, for example, an employee for half a calendar year and self-employed for the other half, they meet the criteria under both schemes for that year to count towards the 45-year career condition. However, the intention is not to count one year twice. A calendar year may only be taken into account once for the 45-year career condition! Regularised study years count towards the calculation of the legal pension, but they do not count towards the assessment of a full career of 45 years in the context of the application of the 10% final taxation for IPT (an individual pension commitment funded by your company), or the application of the notional annuity on 80% of the capital in the context of the final taxation for VAPZ (the free supplementary pension for the self-employed).

What should we understand by the notion of 'effectively active'?

For the application of the favourable final taxation (10% for IPT, notional annuity on 80% of the capital for VAPZ), it is not sufficient for the person concerned to have a 'full career' of 45 years; they must also have remained 'effectively active' until reaching the full career. To that end, an employee must have carried out an occupational activity for a period of three years preceding the legal retirement age, or the age at which the conditions for a full career are met, in order for the supplementary pension capital to qualify for the favourable rate of 10 %.

For the rules regarding "effectively active" in the case of a self-employed person, read further here.

A new additional role for Sigedis. In practice, beneficiaries had to provide a number of certificates to prove to the pension institution that they had remained effectively active. Because Sigedis has access to social security data, during the course of 2024 Sigedis will automatically inform pension institutions whether an employee has remained effectively active. In this way, pension institutions will immediately be able to withhold the correct payroll withholding tax when drawing up settlement statements for, for example, the payout of a group insurance at retirement.

Equated periods? Certain periods of inactivity can be equated with periods of effective activity, such as career reduction, unemployment, SWT periods. Because this raised quite a few questions, the tax administration provided a number of clarifications via circular 2023/C/83 of 4 October 2023. We summarise:

Statutory sickness or disability benefits: the period during which an employee receives statutory sickness or disability benefits is equated with activity if the incapacity for work results from illness (other than occupational illness) or accident (not a workplace accident).

Unemployment for those over 60: periods of unemployment were already equated with periods of effective activity. There used to be a number of conditions attached to this. For example, it had to concern involuntary unemployment during which an unemployed person may not refuse training or a position, where the unemployed person is available for the labour market, and actively cooperates with guidance or training initiatives. However... this "adjusted availability" also provided for an exception whereby unemployed persons over 60 no longer had to actively look for work. This exception, in turn, meant that these persons over 60, unintentionally and often unknowingly, no longer met the condition of remaining "effectively active", which resulted in higher taxation on their pension capital. As of circular 2023/C/83, it is provided that periods of unemployment during which the older unemployed person remained "adjusted available" are also equated with periods of activity.

Temporary unemployment, caution in case of abuse: this is unemployment where the employee still has an employment contract, but its performance is temporarily suspended. After 3 months in the case of force majeure, or after 6 months (for economic reasons), the employee had to meet a number of conditions to retain entitlement to the benefits, including, for example, being available for the labour market. This period of 3 or 6 months still corresponds to an "effectively active" period. But... if it later turns out that an employee - often due to an error on the part of the employer - wrongfully "benefited" from the temporary unemployment scheme, the wrongfully paid benefits will be reclaimed by the RVA from the employer, and the employee loses "effectively active" status for that period.

Leave for informal caregiving: periods of informal care and assistance to a sick family member are also equated with a period of effective activity.

Dismissal with severance pay: When an employee is dismissed with a notice indemnity or a dismissal compensation allowance, the dismissed employee is not entitled to unemployment benefits during the period covered by the notice indemnity or the dismissal compensation allowance. In the past, this was a period of activity provided that the unemployment occurred independently of the employee's will, the employee was registered as a jobseeker, and available for the labour market. A great many conditions therefore had to be met in order to still benefit from the favourable rate. Because it is the employer who decides on the dismissal and on whether or not to pay a notice indemnity, this was unjust, and these latter conditions are now removed via Circular 2023/C/83.

Please note: before proceeding to the settlement of the policy of an employee, the employer must have fully funded any shortfalls in the minimum return.

Read all about it here.