Kevin Begon -

How and how much should you save for your pension?

Life expectancy is increasing: a Belgian baby born in 2021 has a life expectancy of 81.8 years. This means that you’ll be able to enjoy your pension for longer than previous generations. But will the state pension be enough, and what’s the best way to supplement it?

Belgians are worried about their pensions. No fewer than 70% of them are wondering if the state pension system is sustainable; among thirty-somethings, the percentage even rises to 80%. These are some of the conclusions of a Profacts survey commissioned by BNP Paribas Fortis. It's no wonder that two out of three Belgians wonder how much money they need to save to maintain their standard of living once they retire.

"There's no need to worry about the future of the pensions system," says Koen De Leus, Chief Economist at BNP Paribas Fortis. "You will always receive a pension. We can ensure that our social security system remains solvent in quite a simple way if we all work more. Governments are constantly working on this, although they should probably speed up the pace. I'm not really worried about this."

What pension will you receive?  

Your pension will not be as much as your final salary. "To maintain your standard of living in retirement, you will need to have built up a nest egg, the amount of which depends on each individual," says Koen De Leus. "Firstly, not everyone receives the same level of pension. As a proportion of their final salary, civil servants receive a higher pension than private-sector employees, who in turn receive more than self-employed people." So you should first get an idea of how much your future pension will be. You can estimate this on the mypension.be website, for example.

Once you know the amount of your future pension, you can calculate how much more you’ll need to maintain your desired standard of living. "And that's where the second difference lies," says Koen De Leus. "Not everyone has the same standard of living or the same wishes. If you want to have an additional €2,000 per month in addition to your pension, you will need to build up a savings pot of €500,000. That’s not possible for everyone."

Here's how to build up a supplementary pension pot

"There are several ways to build up your savings," says Koen De Leus. "For employees, there is what’s called the “second pillar”: a supplementary pension plan arranged via your employer." There’s also the “third pillar”, which consists of pension savings plans that come with tax incentives. "This allows you to invest around €1,000 per year in a pension fund. You can expect a real return of 3% on average over the long term. If you put €80 per month into a pension savings plan from the age of 25, you will have built up a savings pot of €77,000 after 40 years."

"If you can put aside more money for your old age, it's best not to leave it lying in a savings account," notes Koen De Leus. "Savings accounts are currently only paying 0.50% interest." The alternative to a savings account is to invest. "This requires a strategy tailored to your age and risk profile," says Koen De Leus. "As a rough guide, the percentage of shares in your portfolio should be 100 minus your age. So 25-year-old could invest 75% of their savings in shares, while for a 50-year-old it would be at most half."

Start as early as possible

According to Koen De Leus, it's never too early to start saving for your old age. "People who start saving at 30 will have to save a third less than those who start at 50 to build up the same nest egg. And if you retire at 60, you will need more savings than if you work until 65." By committing to the long term, you’ll also be less exposed to stockmarket fluctuations. "Some years, shares will see their value drop by 20%. This can be painful," explains Koen De Leus. "But by paying a small amount each month into a fund, the peaks and troughs cancel each other out and the prices at which you buy your investments average out over the long term."

Pension savings or long-term savings?

Although both offer tax benefits, there are differences between pension savings and long-term savings. Follow our tips and start as early as possible.

Ask Your Bank.

BNP Paribas Fortis wants to help you see things more clearly when it comes to managing your money. That's why we asked over 1,000 Belgians about any questions and concerns they had. With our Ask Your Bank series, we address those questions and concerns in a fully transparent way.