Modification to the tax notion of "statutory retirement age"

27 Feb 2019

As from now, employees who take up their statutory pension before the age of 65, but with a full career and who can prove that they remained active until retirement, can also benefit from the advantageous tax treatment of their occupational pension lump
sum at 10%.  

Situation for employees before the legal change

As a consequence of the Act of 18 December 2015, employees are obliged to take up their occupational pension when they take up their (early) statutory pension. This is also the case for employees younger than 65 years who have reached a full career of 45 years and can therefore claim a full statutory pension. When they claim their (full) statutory pension, they are also obliged to take up their occupational pension lump sum. And that is where a problem arose. Because they took up their occupational pension lump sum before the legal retirement age, it was taxed at 16.5% instead of at the more advantageous rate of 10% (plus municipal taxes). The legislator considered this as unfair and remedied this situation with the law amending the Income Tax Code 1992 with regard to the notion of statutory retirement age, which was adopted on 14 February 2019.  

After the legal change

The legal retirement age is no longer only defined as reaching the age of 65 years (from 2025, 66 years and from 2030, 67 years) but also as “fulfilling the conditions for a full career”. If the employee remained active until the age at which he meets “the conditions for a full career”, his occupational pension lump sum will be taxed at the advantageous rate of 10%, even if he takes it up before his 65th birthday. 

A full career needs to be interpreted on the basis of the pension legislation and contains 45 career years with a usual or main employment and therefore an employment with an intensity of at least 1/3 of a full-time activity (= 104 full-time day equivalents per annum).

Impact on the institutions for occupational retirement provision / insurers

The scales of the withholding tax must still be adjusted to this legal change. For the time being, the withholding tax have not yet been adapted, although this will undoubtedly be done in the future. Institutions for occupational retirement provision and insurers will, from that point on, need to take this rule into account. The question arises as to how they will be able to check in a conclusive manner if an employee meets the requirements for a full carreer.

> Action point

It is important to keep this new rule in mind. Once the scales of the withholding tax will be adapted, institutions for occupational retirement provision/insurers will need to check if the employee meets the requirements for a full carreer.