Why ETFs are suitable for retirement planning

The Belgian pension system under the microscope

Belgium has a four-pillar pension structure. Still, the statutory pension is insufficient for most citizens to maintain their standard of living during retirement. As a result, more and more Belgians are taking matters into their own hands and are independently building up their pension. ETFs can be a powerful tool in doing so.

- The four pillars of the pension

1. First pillar: the statutory pension based on your professional career. This amounts to an average of 1.400€ gross per month for employees.
2. Second pillar: the supplementary pension via the employer, through group insurance or pension funds.
3. Third pillar: tax-advantaged individual pension savings or long-term savings, with an annual tax benefit.
4. Fourth pillar: voluntary saving or investing with your own funds, without tax advantages but with full flexibility and control.

- The necessity of a fourth pillar

With rising life expectancy and an unsustainable ratio between active workers and retirees, the first pillar is under increasing pressure. The second and third pillars are limited in volume. Anyone who wants a comfortable pension must therefore save independently. ETFs offer an efficient way to build that fourth pillar.

What are ETFs and why are they interesting?

- Definition of an ETF

An ETF (Exchange Traded Fund), also called a tracker, is a stock exchange-listed fund that follows the performance of an underlying index. Think, for example, of the MSCI World Index, which consists of more than 1.200 companies worldwide. When you buy an ETF, you automatically invest in a basket of companies instead of a single stock.

- Advantages of ETFs

• Low costs: the annual management costs of ETFs are often less than 0.30%, compared to an average of 1.5% to 2% for actively managed funds.
• Broad diversification: a single ETF can contain hundreds or even thousands of stocks, significantly reducing risk.
• Transparency: the composition of an ETF is public and easy to track.
• Liquidity: ETFs are tradable like a regular share during stock exchange hours.

Also read: “ETFs: Everything You Need to Know to Invest Better”

Is an ETF good for your pension?

- Long investment horizon as an advantage

For retirement savings, you typically invest over a term of 20 to 40 years. Thanks to this long horizon, you as an investor enjoy two major advantages:

• Market fluctuations are smoothed out: temporary declines are usually compensated over the long term.
• Compound interest: (interest on interest) works in your favor.

Did you know that a one-time investment of 100.000€ at an average annual return of 6% can grow to almost 575.000€ over 30 years? That is the power of compound interest.

Let’s take the example of Sarah, who invests 150€ a month from the age of 30, and Tim, who waits until he is 40 to invest the same amount each month. By the age of 67, assuming a hypothetical annual return of 6%, Sarah will have invested 66.600€ and could have around 235.000€. Tim, on the other hand, will have invested 48.600€, building up a total of around 118.000€. Her ten-year head start cost Sarah just 18.000€ in extra contributions, but it means she ends up with twice as much capital.

This difference illustrates the power of compound interest: the earlier you start, the more time your potential returns have to generate further returns.

What about you? Use our calculator to see how compound interest affects your savings, year after year.

- Diversification and stability

ETFs offer automatic diversification, which reduces risk. This means you are less likely to be hit hard by a poorly performing stock or sector. By investing in global indices, you diversify across continents, sectors, and currencies.

Can I save for retirement using ETFs in Belgium?

- What is legally possible?

In Belgium, you cannot use ETFs within the tax-advantaged pension savings system (third pillar). This is legally limited to funds approved by the government. ETFs are therefore not eligible.
But: you can freely invest in ETFs via the fourth pillar, without fiscal restrictions or advantages. This provides flexibility to optimally align your pension with your profile and objectives.

- How do you start saving for retirement with ETFs?

1. Open an investment account with a regulated provider such as Easyvest.
2. Choose the right ETFs according to your risk profile (defensive, neutral, dynamic).
3. Start with periodic investing.
4. Stay on track and review your strategy every few years.

- Why traditional pension savings might cost you returns

In Belgium, pension savings via the third pillar are fiscally attractive, but returns are often limited by legal and structural restrictions. For example, a pension savings fund may invest a maximum of 75% in shares, of which only 20% outside Europe. These rules are intended to limit risk, but they also suppress potential long-term returns — precisely what is essential when building a pension.

Moreover, the costs in traditional pension savings funds are not negligible: entry fees of 2 to 3% and annual management costs averaging 1.2%. As a result, the net return often remains below that of global stock markets.

According to Test-Achats, pension savings funds have yielded an average return of 4.6% per year over 10 years, compared with 11.5% for an MSCI World Index tracker.

Anyone who wants to optimize their pension build-up can therefore consider using ETFs within the fourth pillar, in addition to tax-advantaged pension savings. These offer lower costs, broader diversification, and better control over your strategy.

The role of Easyvest in your pension planning

- Easyvest’s approach with ETFs

Easyvest offers an automated and diversified investment path based on ETFs. We only choose broad and high-performing index funds, tailored to your investment horizon and risk profile.

- Advantages of investing with Easyvest

• Low costs: management fees starting from 0,40% per year
• Global diversification: via ETFs in stocks and bonds
• Advice and simulation: tailored to your pension plan

- Estimate how much you need to save for a comfortable retirement

Do you want to know how much you need to save to live comfortably after your retirement?
Start a simulation on our website today or schedule a meeting with an advisor for a personalized approach.

Conclusion: ETFs as a lever for a comfortable retirement income

ETFs offer you all the assets for an effective pension strategy:

• Low costs that maximize returns
• Broad diversification that reduces risks
• Simplicity and transparency that build trust
• Full control within the fourth pension pillar

Do you not want to be dependent on an uncertain statutory pension?
Easyvest helps you with a clear strategy, so you can approach your retirement with peace of mind.

FAQ: How can you best prepare for retirement in Belgium?

Will working part-time or taking a career break reduce my statutory pension?

Working part-time may reduce your statutory pension in Belgium, as this depends, among other things, on your income and the length of your career. However, certain breaks, such as parental leave or time credit, may be treated as periods of employment, subject to certain conditions.

To prepare for a possible reduction in your income when you retire, you might consider building up supplementary savings using ETFs. You can also consult the rules of the Federal Pension Service to better understand the impact of part-time work.

Will retiring early reduce my pension?

Taking early retirement may reduce your statutory pension, particularly as you will have accumulated fewer career years. From 2027, a pension penalty will also apply to those who take early retirement without meeting certain career requirements.

Investing gradually in ETFs could help build up additional capital and provide greater financial flexibility in retirement, although there is no guarantee of a return.

At what age should you start saving for your retirement?

The earlier you start, the more time you have to benefit from the power of compound interest. Even modest contributions can help build up a significant sum of money over several decades.

However, it is never too late to start investing. The key is to tailor your strategy to your investment horizon, your financial situation and your risk tolerance. ETFs carry a risk of capital loss.

How much should you save each month to prepare for retirement?

The ideal amount depends on your age, your estimated statutory pension, your existing savings and the standard of living you wish to maintain in retirement.

To work out how much you need to save, start by checking your future pension on mypension.be, then estimate the additional income you’ll need. Regular investments in ETFs could help you build up this capital, although returns are never guaranteed.

Is it better to invest in ETFs or in a traditional pension savings scheme?

The two options can be complementary. Traditional pension savings schemes offer tax benefits under certain conditions, but are subject to contribution limits and investment restrictions. ETFs, which are accessible via the fourth pillar, offer greater flexibility and generally lower management fees, but do not benefit from the same tax advantages.

The choice depends on your personal circumstances, your investment horizon and your risk tolerance. To learn more, find out how to invest in ETFs in Belgium.