Jente Verbruggen is a nurse at the hospital of the University of Leuven. She asked herself this fundamental question: how high will her pension be by the time she retires? It’s hard to give an exact answer to this question because it requires us looking into the future. But we can start by understanding how the Belgian state calculates your pension and come to an estimate.
The four pillars of the Belgian pension system
Your pension comes from contributions from four so-called pillars:
- State pension (pillar 1). The government entitles every Belgian worker, whether employee, freelancer or public servant, to a state pension. The amount is dependent on the number of years that you’ve worked throughout your career as well as the salaries that you’ve earned. The higher your salary during your working life, the higher the state pension will be.
- Occupational pension (pillar 2). This is called “aanvullend pensioen” (Dutch) or “pension complémentaire” (French). The contributions are paid through your employer and carry a tax break. Usually, both your employer as well as yourself contribute to the occupational pension.
- Personal pension savings with a tax break (pillar 3). You can choose to save additional funds for your pension outside of your employer. This is called “pensioensparen” (Dutch) or “épargne-pension” (French). Like the occupational pension, it comes with a tax break. You can read more about this form of pension in “How does investing in a pension account (“épargne-pension”) compare to passive investing for Belgians?”.
- Voluntary personal savings with no tax break (pillar 4). Any further saving that you do on your own, for instance by contributing to a savings account or by investing your savings, fall into this category. This type of saving is not part of a state-subsidized scheme so you cannot take advantage of any tax breaks.
It’s possible to save through all four pillars. Your final pension will be the accumulation of the contributions of each.
The majority comes from the state pension
For most people, the majority of the pension will come from the state pension (pillar 1). Mercer calculated that the state pension will contribute 62% to the pension of an average employee wishing to maintain his standard of living, meaning a pension equal to his last salary. The rest will have to come from the other three pillars. The higher your pension, the more you will have to save outside of the state pension.
In the rest of this article, we will focus on estimating the state pension.
Calculating the state pension
First of all, the state pension is calculated differently for employees, public servants and freelancers. We will focus on employees only.
The calculation itself is pretty complicated. It takes into account what age you started working, what salary you were earning for each of your working years, a revalorisation index to account for account inflation, etc… For this reason, we built a pension calculator that calculates this for you! All we need to know is:
- your age,
- at what age you started working,
- what salary you were earning when you started working, and
- what salary you estimate to be earning right before retirement
And it figures out an estimate for the state pension when you retire at age 67.
As an example, let’s imagine that you:
- are 29 years old
- started working at 22
- were earning a monthly pre-tax salary of €2,800 when you started (about €1,900 after taxes)
- will be earning €5,000 pre-tax by the time you retire (about €2,800 after taxes)
Your state pension will be around €1,725 per month. Note that this is in today’s money. By the time you retire in 2057, inflation will have raised all prices. Your actual pension will be €3,716 but that equals to about €1,725 when converting to today’s prices.
How can I increase my pension?
You can raise your state pension only by earning a higher salary during your career. However, you can augment your total pension by saving through one of the other three pillars:
- set up an occupational pension scheme with your employer (pillar 2)
- open a pension saving account with a bank (pillar 3)
- contribute to a nest egg and boost its returns through investing (pillar 4)
In the article, we gave a bird’s eye view of how the Belgian state calculates your pension. The four pillars that make up the system are fundamental to understand how your pension is determined. Of the four pillars, the state pension (pillar 1) is the most important contributor for most people’s pension. You can use our pension calculator below to find out an estimate of your state pension!