Why is group insurance advantageous for both the worker and the employer?

A large number of Belgian workers have group insurance in their remuneration package, providing them with a nice supplementary pension thanks to the capital paid at maturity. But group insurance is not only beneficial for the worker. It is also beneficial for the company.

What exactly is group insurance?

Group insurance is an insurance policy taken out by a company for the benefit of (part of) its employees. With the premiums, the worker builds up a supplementary pension capital. The group insurance capital may be paid on the date of the statutory pension or when the worker becomes eligible for an early statutory pension. Premiums are either paid in full by the employer, or in part by the employer and in part by the worker, with a certain percentage deducted from his or her gross salary (e.g. 1%) as a fixed premium.

The advantages of group insurance for workers

BUILDING UP A SUPPLEMENTARY PENSION

The statutory pension will not be sufficient to guarantee your standard of living after retirement. After your retirement, your income will decrease drastically. If you want to close this gap, you must save for a supplementary pension. The capital from a group insurance policy will undoubtedly be an important step in the right direction.

ADDITIONAL GUARANTEES OF A GROUP INSURANCE POLICY

In addition to building up a supplementary pension, a group insurance policy also offers several additional guarantees. This is usually:

• death coverage with payment of a lump sum to relatives in the event of the worker's death. 
• an additional death benefit in the event of death following an accident.
• an income in the event of work incapacity due to illness or accident (both private and professional). Some insurers, such as NN Insurance, pay an additional amount in the event of total and permanent work incapacity following an accident.
• a waiver of premium benefit with the insurer covering the group insurance premiums in the event of the work incapacity of the worker, who can thus continue to save for his or her supplementary pension, even if he or she is unable to work.

Group insurance can therefore offer extremely comprehensive protection. But group insurance does not offer all of this additional coverage. The decision in this case is often the employer's, even if you sometimes have a great deal of decision-making power (e.g. cafeteria plans).

FREE CHOICE OF GUARANTEES

Some group insurance policies do not allow the choice of coverage available to workers. The employer is therefore the only one to decide. Other policies allow workers to choose (partly) the distribution of premiums between the different types of coverage. This is of course a great advantage. A death benefit may be relatively high for a young parent, while a person in their fifties will attach more importance to building up a supplementary pension. Group insurance which allows the worker to choose the benefits him/herself is called a cafeteria plan. You can choose from the menu just like you do at the cafeteria. In addition, it can be adapted from year to year as you wish.

GUARANTEED RETURN

As a worker, you benefit from a guaranteed return on fixed premium plans and cash balance plans. This means that the premiums paid by both you and the employer will always generate a minimum return calculated according to a formula which takes into account the yield of 10-year OLOs (linear bonds). For 2018, the guaranteed yield is 1.75%. If your company's group insurance does not achieve this return, your employer will have to make up the difference when the capital of your group insurance is paid out. 

But you must not confuse guaranteed return with guaranteed interest rate. 

• Premiums for your supplementary pension can be invested in a branch 21 or branch 23 policy. A branch 21 policy offers a guaranteed rate, possibly supplemented by a profit sharing bonus. Together, they represent the total return on your policy. With a branch 23 policy, your return will depend on the performance of the underlying investment funds. This return will be higher than that of a branch 21 policy if these funds perform well, and lower if the funds perform poorly.
• The guaranteed return is recalculated each year according to a fixed formula. As already mentioned, the guaranteed return in 2018 is 1.75%. The total return of your policy (whether it invests in branch 21 or 23) will be compared to this guaranteed return. If it is higher than the guaranteed return, you will receive the total return. If it is lower, the employer will be required to pay the balance so that you will receive at least a 1.75% return. However, this will only be calculated when you request the capital payment and not on an annual basis.

THE BUILT-UP RESERVE STILL BELONGS TO YOU

If you have group insurance with your employer but change employers, the assets accumulated in your group insurance will still belong to you. The same applies in the event of dismissal.

If your new employer also offers a group insurance policy, you will have two options: either transfer the reserve from your old group insurance policy to the new one, or leave the old group insurance policy as it is and no longer pay premiums towards it, and receive the reserve (minus the final tax) at maturity. An insurance broker specialising in supplementary pensions will explain whether it is worthwhile in your case to transfer the reserve or not. Much will depend on whether or not your group insurance is backed by a guaranteed rate and what the rate is.

BUY, BUILD OR TRANSFORM PROPERTY USING YOUR GROUP INSURANCE

Your group insurance is an advantageous financing method for a property-related project. If you wish to buy, build or transform property in the European Economic Area (EU + Norway, Iceland and Liechtenstein), you can request an advance on your group insurance. You will then receive a given percentage of your group insurance reserve. This percentage will most often be around 65%, depending on what the group insurance regulation provides for. In most cases, you will also have to pay interest until you repay the advance. The amount of the interest and how it is paid will vary from one policy to another. If you do not repay this advance, it will simply be deducted from the capital paid to you at maturity.

Another possibility to finance a property-related project advantageously is to use your group insurance as collateral. This means that you take out a loan which you will use for the purchase or transformation of your house or flat. When your group insurance expires, you will repay the entire amount of your loan at once with the capital from the group insurance. In the meantime, you will only have to pay interest. This is especially interesting if you are only a few years away from the statutory pension.

You can also use the death coverage of your group insurance as collateral, as an alternative to outstanding balance insurance. If you have taken out a home loan and die before it is fully repaid, the insured death benefit will then be used to repay the remaining balance directly to the lending institution. If there is still money left after the balance is paid, it will go to your beneficiaries. An advantage in this case is that you will not have to take out outstanding balance insurance for (part of) your mortgage loan.

ADVANTAGEOUS TAX TREATMENT

The final capital of your group insurance will be taxed as follows:

• Solidarity contribution of 0-2% (calculated on the total capital, including profit-sharing bonus)
• Sickness and disability contribution (INAMI contribution) of 3.55% (calculated on the total capital, including profit sharing bonus)
• Tax rate: the exact percentage will vary depending on 
  • whether the premiums are paid by you or by the employer
  • the age at which you request the capital (for premiums paid by the employer)
  • the date on which you paid your own contributions (for the premium paid by the worker)

The withholding tax on earned income will be applied to the capital without the profit sharing bonus and after deduction of solidarity and INAMI contributions.

The table below shows the withholding tax on the contributions (premiums) paid by you:

Date of payment of the premium by the worker	% tax rate
Before 1993	16.5% (+ municipal tax)
From 1993 onwards	10% (+ municipal tax)

 

And here are the percentages for the contributions paid by the employer:

Age at which you request the capital of the group insurance	% tax rate
age 65	10% (+ municipal tax)*
ages 62-64	16.5% (+ municipal tax)
age 61	18% (+ municipal tax) if no legal pension yet 16.5% (+ municipal tax) if legal pension is received
age 60	20% (+ municipal tax) if no legal pension yet 16.5% (+ municipal tax) if legal pension is received

* if you have continued to work until then, otherwise the tax rate is 16.5% (+ municipal tax)

If a worker takes an advance or pledges the contract as collateral in order to purchase or transform property (single dwelling), the final taxation will be based on the notional annuity system. If the worker keeps working until his or her 65th birthday, the notional pension will be calculated on only 80% of the amount of the advance.

The advantages of group insurance forthe employer

TAX EFFICIENT

The employer can deduct the group insurance premiums as a professional expense.

AN ADVANTAGE IN THE TALENT WAR

Attracting talented young workers is not always easy for companies. Competition between potential employers is indeed merciless. The remuneration package is an important parameter and a complete group insurance policy can certainly make a significant difference in this case. 

MUCH MORE INTERESTING IN NET TERMS THAN A GROSS SALARY INCREASE

When an employer wants to reward workers, an increase in their gross salary is the most widely used option. And this is a mistake, as the salary will be taxed heavily. An equivalent increase in the group insurance premium will bring workers much more net benefits than an increase in their gross salary. 

Let us illustrate this with an example. 

Budget of 100 EUR gross	Salary increase	Group insurance	Gain
Cost for the employer	135 EUR	113.26 EUR	16 %
Net worker	+/- 40 EUR Available immediately	+/- 76 EUR Available at retirement	90 %*

*This advantage will increase further with capitalisation

GREAT FLEXIBILITY FOR THE EMPLOYER

The employer determines the budget to be devoted to group insurance. The employer also chooses the workers who will or will not benefit from group insurance. Note that providing group insurance on a purely individual basis to some workers and not to others is prohibited. There can only be a distinction according to certain categories of worker: for example, all of the salespeople, but not the other workers. Of course, the employer will still decide on the guarantees and the amount of the workers' own contributions. In large companies, the company board will also have a say in this case.

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Do you have any questions about group insurance? Be sure to contact your insurance broker. Here you can read about the advantages that NN group insurance has to offer.