Mind the Gap! HR Factory April 2 nd, 2015

Transcription

1 Mind the Gap! HR Factory April 2 nd, 2015

2 Introduction to the Luxembourg State Pension System 2

3 PENSION SYSTEM IN THE GRAND DUCHY OF LUXEMBOURG RETIREMENT: STATE PENSION State Pension Company Pension Personal Pension I st PILLAR II nd PILLAR III rd PILLAR IV th PILLAR 3

4 CONTRIBUTIONS AND ENTITLEMENT STATE PENSION CONTRIBUTIONS STATE PENSION CONTRIBUTIONS 8% 8% State Employer 8% Employee 3 x 8% = 24 of gross salary up to the social security ceiling (currently ,84) 4

5 CONTRIBUTIONS AND ENTITLEMENT WHO IS ENTITLED? In order to qualify for an old-age pension, the employee must both have been insured for at least 120 months, and have reached the age of 65. In certain circumstances connected with the length of the period of insurance, the old-age pension may be awarded early, from the age of 57 or 60 (early retirement). Periods of insurance completed in other Member States of the European Union are taken into account. 5

6 RETIREMENT / EARLY-RETIREMENT The normal retirement age in Luxembourg is 65, however early retirement is possible from age 57 if certain conditions are met. FROM AGE 57 FROM AGE 60 FROM AGE 65 The insured person must justify 480 months (40 years) of effective pension insurance contributions. The insured person must justify 480 months (40 years) of effective pension insurance contributions these could include complementary periods or voluntary contributions but are subject to specific rules. The insured person must justify 120 months (10 years) of effective pension insurance contributions. 6

7 EXAMPLE OF A FULL CAREER IN LUXEMBOURG Retirement Age: 65 Years of contributions: 38 years in Luxembourg 0 years in other EU countries Complementary periods: 5 years Average monthly Salary: 5 768,88 RESULTING PENSION = 4 479,31 per month, equal to 77,7% of salary 1 289,57 less than average monthly salary 7

8 REPLACEMENT RATIO AGGREGATE REPLACEMENT RATIO* Luxembourg France Italy Poland Spain Greece Portugal Austria Sweden Norway EU (28) United Kingdom Finland Netherlands Germany Belgium Denmark Switzerland Ireland 64% 62% 60% 60% 60% 59% 59% 58% 56% 55% 53% 49% 47% 47% 47% 44% 41% 37% 78% Looking at this you may think: We work in Luxembourg so where is the problem? 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% *The indicator is defined as the ratio of the median individual gross pensions of age category relative to median individual gross earnings of age category, excluding other social benefits. EU aggregate figures are calculated as population-weighted averages of national values. 8 Source: Eurostat 2013

9 FOREIGN WORKFORCE / MIXED CAREERS WORKFORCE IN LUXEMBOURG NON-RESIDENTS RESIDENTS ,8% of Luxembourg s workforce is foreign of which 68,6% are from a country of the European Union. 44,3% Germany (11,0%) Belgium (11,1%) Foreign (EU) (24,4%) ,7% The likelihood of a full career in Luxembourg (at least 480 months of pension contributions) for a large proportion of the workforce is therefore relatively low

10 1 st PROBLEM: A MIXED CAREER IN LUXEMBOURG AND BELGIUM Full career in lux Mixed career Lux + BE Retirement Age: Years of contributions: 38 years in Luxembourg 20 years in Luxembourg 0 years in other EU countries 18 years in Belgium Complementary periods: 5 years 5 years Average monthly Salary: 5 768, ,88 RESULTING PENSION = 4 479,31 (77,7 %) 3 228,51 (56,0%) 1 289,57 less than average salary 1 250,80 less than for a full career in Lux 2 540,37 less than average salary 10

11 2 nd PROBLEM: EARNINGS ABOVE THE SOCIAL SECURITY CEILING Full career in lux Mixed career Lux + BE Retirement Age: Years of contributions: 38 years in Luxembourg 20 years in Luxembourg 0 years in other EU countries 18 years in Belgium Complementary periods: 5 years 5 years Average monthly Salary: , ,76 RESULTING PENSION = 7 160,71 (62,1%) 4 553,02 (39,5%) 4 377,05 less than average salary 2 607,69 less than for a full career in Lux 6 984,74 less than average salary 11

12 THE GAP! We ve identified GAPS 1) ranging from 1 289,57 to 6 984,74 1) GAPS = Representing the difference between the state pension and the average salary depending on the person s income (below or above the social security ceiling) and their career path (full career in Luxembourg or mixed career). 12

13 WHAT DO I NEED TO FILL THESE GAPS? Pension annuity of per month per month per month This amount should be indexed by 2% yearly The annuity should be paid from age

14 WHAT DO I NEED TO FILL THESE GAPS? What is the capital requirement to pay a life long pension annuity for the amounts listed above based on todays life expectancy? 14

15 ILLUSTRATION For a per month lifelong pension annuity indexed at 2% the capital requirement is? 15

16 ILLUSTRATION Venture a guess! 16

17 ILLUSTRATION PENSION ANNUITY CAPITAL REQUIREMENT

18 Age Age Age THE PYRAMID OF AGES Men Women Population Pyramid EU-27 in 1991 % of the total population Men Women Population Pyramid EU-27 in 2011 % of the total population Men Women Population Pyramid EU-27 in 2060 % of the total population ,8 5,8 7,0 8,9 12,7 14,4 16,6 11,0 12,0 18,0 17,6 17,5 66,9 64,3 61,7 59,0 57,0 56, years years years 80+ years Increasing amount of retirees Reduced amount of active (contributing) population 0 15,6 15,5 14,7 14,2 14,3 14, Decreasing birth rate 18

19 EXAMPLE OF A FULL CAREER IN LUXEMBOURG CONTRIBUTIONS VS OVERALL PENSION Pension Contributions: x 24% = per year x 38 years = VS Paid Pension: x 12 years = per year x 20 years = As the average overall pension payment is higher than the overall pension contributions this difference will inevitably lead to a deficit to the state pension system if no changes are made. 19

20 1 ST PILLAR IN GRAND DUCHY OF LUXEMBOURG EVOLUTION OF EXPENSES, REVENUES AND RESERVES Evolution of expenses, revenues and reserve Expenses Revenues Reserves Source : CNAP. 20 September 2012

21 2 nd, 3 rd and 4 th Pillars Solutions 21

22 PENSION SYSTEM: PILLARS IN GRAND DUCHY OF LUXEMBOURG RETIREMENT: THE FOUR PILLARS State Pension Company Pension Personal Pension I st PILLAR II nd PILLAR III rd PILLAR IV th PILLAR 22

23 A WIN-WIN SITUATION FOR EMPLOYERS AND EMPLOYEES POSSIBILITIES: Company Pension: Fully tax deductible Not subject to social security contributions Flat tax of 20% Compensatory tax of 0.90% Personal Pension linked to an occupational pension scheme: Deductible at the marginal rate Not subject to social security contributions Non-taxable in Luxembourg 23

24 A WIN-WIN SITUATION FOR EMPLOYERS AND EMPLOYEES Company Pension Hypothesis 1 Single (Tax class 1) Annual Salary : Propose salary increase : Comparison Salary increase of Company pension plan premium of

25 A WIN-WIN SITUATION FOR EMPLOYERS AND EMPLOYEES Salary increase of Option 1 Cost for the employer: 1, Social Security and taxed: Net salary increase: Company Pension Plan Premium of Option 2 Cost for the employer : 1, Taxes (20,90%): Net pension plan premium: At equal cost for the employer (1000 ), the employee has a gain of 380 if the money is contributed to a company pension plan instead of a salary increase.. 25

26 PERSONAL CONTRIBUTIONS Personal Pension Hypothesis Single (tax class 1) Yearly salary : Age : 45 years End of contract : 65 years Yearly premiums : Personal contributions, where are the benefits? 26

27 PERSONAL CONTRIBUTIONS Real annual premium : 699 = (annual premium) (tax benefit). The real annual return exceeds 7,50% taking into account the profit-sharing! 27

28 2 nd PILLAR IN GRAND DUCHY OF LUXEMBOURG - BENCHMARK Benchmark: Parameters X and Y are defined at the employer s discretion and vary according to the member s category and the employer s activity sector. Globally, the market practice is: Retirement Benefits (DC): Management: 8% * S % * S 2 Executives: 4% * S % to 12% * S 2 Employees: 3% * S 1 + 8% to 10% * S 2 Life benefits: Management: 200% to 400% * S Executives: 200% to 300% * S Employees: 100% to 200% * S Usually + 50% to 100% of annual salary per dependent child Disability Benefits: Management: 15% to 20% * S % * S 2 Executives: 15% * S % to 70% * S 2 Employees: 10% * S % * S 2 S 1 = Salary up to the social security ceiling - S 2 = Salary above the social security ceiling 28

29 PENSION SYSTEM: PILLARS IN GRAND DUCHY OF LUXEMBOURG RETIREMENT: THE FOUR PILLARS State Pension Company Pension Personal Pension I st PILLAR II nd PILLAR III rd PILLAR IV th PILLAR 29

30 THE THIRD PILLAR PERSONAL LIFE AND PENSION PRODUCTS Personal life and pension insurances provided under articles LIR 111 and LIR 111 bis. Deductible amounts under Art 111 LIR 672 for the taxpayer for the partner (jointly taxed) for each child Example of Products: Deductible amounts under Art 111 BIS LIR For each taxpayer < 40 years Between Between Between Between Example of Products: OptiKids OptiSave OptiPension 30

31 THE FORTH PILLAR - Personal savings - 6%-10% for Lux career - min 10% for mixed career - Family members - Part time occupation - Downsizing house - Relocate 31

32 SUMMARY 2012 reform has already caused a reduction in 1st pillar benefits for future retirees. Depletion of 1st pillar reserves may require more drastic measures going forward (further reductions in the conversion rate, increase of legal retirement age). Mixed careers of non resident workers or time limited careers in Luxembourg will result in a combined calculation of the 1 st pillar entitlements across all EU countries in which the employee has worked hence not providing the high living standard that the employee was used too whilst working in Luxembourg. Salaries above the social security ceiling are not part of the contributions to the state pension and hence are not part of that pension at retirement. 32

33 SUMMARY SOLUTIONS: Implement a complementary pension scheme for your workforce, which Can help bridge the gap between the last salary and pension benefits; Can be used as a motivational tool for existing and new employees; Is particularly interesting for workers who worked in other maybe even several EU countries; salaries above the social security levels as contributions are not capped Is in most cases more advantageous than a salary increase for the employee at equal cost for the employer. Encourage employees to contribute via personal contributions ( 1.200) Utilize LIR 111 and LIR 111 bis products Regularly save 6% to 10% of annual salary 33

34 A Luxembourg based Life Insurance Leader 34

35 A LUXEMBOURG BASED LIFE INSURANCE LEADER A LEADER IN THE LUXEMBOURG LIFE INSURANCE MARKET Cardif Lux Vie is a life assurance company based in Luxembourg which was created from the merger of two existing high profile insurers within the Luxembourg insurance market, namely Cardif Lux International and Fortis Luxembourg Vie. With an extensive European network of partners and a comprehensive range of products and services, the company provides efficient and flexible products to the specific requirements of a local and international clientele. With vast financial, legal and fiscal expertise, Cardif Lux Vie makes its ambitions clear: to enhance its ability and resources in order to pursue a balanced and controlled development. The Company is active on three complementary markets: life insurance for domestic and cross-border retail customers, group insurance for companies, and international life insurance for wealth structuring purposes. 35

36 A LUXEMBOURG BASED LIFE INSURANCE LEADER EMPLOYEE BENEFITS : STRONG POSITION ON THE MARKET Over 30 years of presence on the Luxembourg Employee Benefits market 3rd largest player with +/-EUR 37 Mn inflow p.a. and +/-EUR 175 Mn EB-related AuM A diversified portfolio of clients (size/activity) with > 400 active groups An active collaboration with the largest insurance brokers and consultancies A longstanding relationship with 2 leading pooling networks Provider of choice for some of Luxembourg s largest companies Today, 20% of Luxembourg based companies have chosen Cardif Lux Vie to manage their group insurance scheme 36

37 A LUXEMBOURG BASED LIFE INSURANCE LEADER CARDIF LUX VIE CORPORATE STRATEGY Leading player of the Luxembourg insurance industry A balanced shareholding structure 3 Business Lines for a balanced development in terms of AUM, GWP and NBI Provide high quality services and solutions for its partners and their clients EMPLOYEE BENEFITS International and Local HR solutions provider Tailored pension and savings plans Experienced and specialized team WEALTH MANAGEMENT Diversification strategy based on a selective approach of markets Profitable, competitive, international, tailored and secured solutions Qualified legal team on the European markets and wealth planning in support of the business activity Strong knowledge in building high quality partnership RETAIL Efficient range of integrated products for the BGL BNP Paribas local networks Provider of new concepts based on innovative services and solutions 37

38 A LUXEMBOURG BASED LIFE INSURANCE LEADER CARDIF LUX VIE KEY FIGURES AND EXPERTISE KEY FIGURES AT 31/12/ billion Gross Premiums 17.5 billion Assets Under Management 80.2 million of Net Banking Income (2013) 39.7 million Gross Operating Income (2013) 121% Solvency Ratio (2013) 225 employees EXTENSIVE EXPERIENCE IN SUPPORT OF A COMPLETE OFFERING A multi-disciplinary legal team A wealth planning and tax department A multi-cultural environment with 18 different nationalities FINANCIAL EXPERTISE OF CARDIF LUX VIE More than 3,877 Internal Dedicated Funds (58% of AUM) 499 Internal Dedicated Funds created in financial managers and 95 approved custodian bank More than 950 External Funds available General Fund managed from Luxembourg (5.8 billions) 38

39 Shareholders with superior financial strength 39

40 SHAREHOLDERS WITH SUPERIOR FINANCIAL STRENGTH THE QUALITY SHAREHOLDERS, GUARANTEEING SECURITY AND RELIABILITY Cardif Lux Vie is owned by three shareholders: BNP Paribas Cardif (33.34%), BGL BNP Paribas (33.33%), Ageas (33.33%). 40

41 SHAREHOLDERS WITH SUPERIOR FINANCIAL STRENGTH BNP Paribas Cardif is the insurance arm of the BNP Paribas Group, a European leader in the provision of banking and financial services and one of the most secure banks in the world. BNP Paribas Cardif became a world leader in personal insurance and aspires to become the world reference in insurance partnerships. Operating in the Retail Banking, Wealth Management and Corporate & Investment Banking sectors, BGL BNP Paribas offers an extensive range of products and services to private, professional, corporate and institutional customers. Ageas, an international insurance Group with over 180 years experience and expertise, is ranked among the top 20 European insurance companies. Ageas concentrates its activities in Europe and Asia, forming, collectively, the largest insurance market in the world. 41

42 Contacts 42

43 Michael SIMARD T: M: E: Rudy FRANCOIS T: M: E: Cardif Lux Vie Avenue de la Porte-Neuve, L-2227 Luxembourg 43

44 44 Thank you for your attention!