This pension shuffle post over at Cheesy finance reminded me I also need to do a post about pensions.
The Belgian pension has three different components.
The first component is the official government component. As an employee there is not a great deal that can be done about this. It will be what it will be. It is also a very complex subject. Personally I would love to be able to speak to somebody who is an expert to see what the impact of FIRE on the official pension will be. What I do know is that with the guaranteed minimum pension and the ceiling the government implements my approach of working a bit after FIRE might not only be more tax efficient but also more pension efficient.
It boils down to this: above a certain amount earned you are still paying pension contributions but those do not result in a higher pension since you have already reached the ceiling for that. There is a guaranteed minimum pension if you reach the 30 years threshold of employment (or time that is equivalent to working like unemployment and pregnancy leave and such).
So pulling the plug earlier and limping your way across those thirty years with a combination of some work and unemployment should result in a better pension than working full throttle for say 25 years and then completely stop with working. Should. Like I said, I would really love to have an expert in this run a few simulations. If somebody knows of somebody please send him my way! It could be an interesting topic to delve into deeper at a FIRE meet-up.
The second component is the additional pension you can get from your employer (this comes in the form of a group insurance thing.
This is the part where a pension shuffle as described in the guest post at Cheesy finance can come in handy. So when you have changed employer and you are dragging an old pension scheme of the previous employer with you it can be interesting to check out if it is not better to fold it into the the one offered by your new employer.
I am in this boat. But the one of my previous employer is actually pretty good (return and cost wise) so I have decided to keep it there. I have to add that it is great to ‘earn’ an additional 1.500 euro (it went from 15 640 euro to 17 014 euro last year) at an employer you have left 3 years ago. So I am just going to leave it there for the moment.
On the other hand, there is no way to get an early payment of this. I just just view it as an extra when I reach 65 years (or perhaps 67?) but do not take it into account for my FIRE plans.
The third component is the individual savings account every adult Belgian can do.
Whendoyouretire put up some calculations on the money mustache forum here. I did ask him to turn it into a post on his blog but these youngsters today with all their drugs and partying … 😉
When striving for FIRE, I am of the conviction not to bother with it because:
- The amount you can put in, is low (less than 1.000 euro a year)
- The return, even with the tax refund, isn’t that good (see the calculations of whendoyouretire)
- Costs are usually high
- You only have access to the money when 65 (or perhaps in the future 67)
- Do your really trust the government not to change the conditions of this in their favor in the next 20 – 30 years? There is a lot of money on that pot and it can’t go nowhere. In government language that means ‘easy pray’ …
So to sum it up:
For the official Belgian government pension I (or we as the Belgian FIRE community) should really speak to an expert about the impact of our FIRE plans on this.
For your employer pension plan, check if you have one from a former employer laying around and see if it is interesting to fold it into your current one.
For the personal pension savings plan: don’t bother.
Good luck finding the expert for this, please do report back when you do!
It is one of these things that, in my mind, is overly complicated. And when compagnies/governments/people make stuff overly complicated I always have the sneaking impression they are trying to hide something ..
I think I lost my previous comment.
I was saying about the second component offered by the employer, can be partially accessed. With a penalty, and a condition: to buy a house. That is interesting for people that wants to retire earlier and to buy a house in Canary islands. (information spoken with my accountant).
For third component (pilier 3, in french) I am more convinced to stop contributing: even with the tax deduction I consider it is better to invest ourself.
P.S. retirement money are taxed in belgium. I am curious how are the other countries, it might be interesting to switch the country for a better tax declaration..