Opinions EN (menu position rule)

Transfer of vested reserves to the pension institution of a new employer

FSMA_Opinion_2020_04
08/12/2020

In accordance with Article 32, § 1, 1°, a) of the Law on Supplementary Pensions (WAP/LPC), a member of a supplementary pension plan whose employment contract comes to an end has the right to transfer his or her vested reserves to the pension institution of his or her new employer.

There are, however, a number of conditions that must be fulfilled for the purpose:

a) The outgoing employee must be hired by a new employer with whom he or she has entered into an employment contract.

b) The outgoing employee must be a member of the “pension commitment” of his or her new employer.

This condition comprises a number of subsidiary conditions. “Pension commitment” is defined as the commitment to pay a supplementary pension. “Supplementary pension” is, in turn, defined as “the retirement and/or survivor’s pension in the event that the member dies before or after retirement age, or the corresponding lump sum, which, on the basis of the mandatory contributions specified in a pension scheme or pension agreement, is paid out as a supplement to a pension based on the statutory social security pension plan”.

In other words:

(i) The outgoing member must become a member

(ii) of a supplementary pension of his or her new employer;

(iii) this supplementary pension must provide for mandatory contributions;

(iv) this supplementary pension must be considered as a supplement to a statutory pension.

An important clarification in this regard is that the said supplementary pension must be one that can be shown under the law governing the new employer’s pension agreement to be considered as a supplementary pension, even if certain features may not be compatible with the WAP/LPC. Many foreign legal provisions thus allow, for example, for benefits to be paid in the event of “particular hardship”, or for a minimum age for this purpose that is lower than in Belgium. Such features do not automatically mean that the commitment does not qualify as a pension, and so do not necessarily stand in the way of a transfer. Only if Belgian law applies to the new employment agreement do all provisions of the WAP/LPC continue to apply to the transferred reserves.

c) Lastly, the transfer must be made directly to the pension institution of the new employer. The transfer must, in other words, be carried out in such a way that the member does not at any time during the operation have access to the lump sum or its surrender value.

If a proposed transfer complies with the aforementioned conditions, social legislation allows it to proceed, even if the new employer is in another country. Article 32, § 1, 1°, a) of the Law on Supplementary Pensions does not limit transfers to Belgian employers. However, foreign employers and their pension institutions are maybe not required to accept the transfer. They may also attach additional conditions and/or costs to the transfer.

In addition, the tax treatment of the transfer of reserves must also be considered. According to the current tax legislation (Article 364ter, second paragraph, of the 1992 Tax Code), a transfer of vested reserves can only be done on condition that, in addition to the above-mentioned conditions, the vested reserves are transferred to a pension institution based in the European Economic Area (EEA).  A transfer to a pension institution outside the EEA will, however, always give rise to the (unfavourable) immediate - i.e. at the time of the transfer - taxation of the amounts involved for the account of the member. The FSMA is not competent for tax matters and therefore verified its position with the Federal Public Service Finance, which in its opinion of 26 November 2020 confirmed that this is indeed correct. It is nevertheless advisable in the event of a transfer of reserves to the new employer’s pension institution abroad to enquire whether this tax opinion is still valid.

By way of conclusion, we wish to point out that many international institutions have their own specific legal framework for their pension commitments, including special rules governing the transfer of vested reserves to and from those pension commitments. If that is the case, those specific rules are in force and this opinion therefore does not apply.