November 8, 2023
By 2070, Belgian aging costs will be higher than in other EU countries with high debts, such as Spain and Italy. The National Bank proposes a combination of measures. She does not rule out capping the highest pensions.
Belgium, like other European countries, is in the middle of an aging wave. An increasing share of the population is retired, while the share of the working-age population that potentially finances pension expenditure is shrinking. This movement will strengthen in the coming decades. According to the latest report from the aging committee in our country, public pension expenditure would increase from 11.5 percent of gross domestic product (GDP) today to 13.5 percent in 2050.
The most prosperity-enhancing solutions are working longer, more people at work and more productivity. But our country has been scoring below par on those parameters for years.
According to the European Commission’s latest aging report, by 2070 Belgian pension expenditure would not only be higher than in neighboring countries the Netherlands and Germany, but also higher than in other high-debt countries such as Spain, Italy and France. An analysis of the figures by the National Bank shows that this cannot be attributed to a greater aging of the population in Belgium, but that it is because we stop working too early, because too few people are working and because the benefit ratio – the average pension in relation to the average wage of workers – is relatively higher.
“The rising costs of aging are putting pressure on the sustainability of Belgian public finances in general,” the National Bank says. ‘The Belgian government debt, which amounts to 104 percent of GDP, will increase steadily in the coming years, driven by a structural budget deficit that is moving towards 5 percent of GDP. To stop the increase in debt, the budget deficit must be reduced. That task seems impossible without significantly reducing the expected increase in pension expenditure relative to GDP.’
Four policy options
The National Bank has done some simulations on how the expenditure ratio can be reduced. The most welfare-enhancing policy option is to boost employment among the elderly, as this simultaneously reduces pension expenditure, increases GDP and reduces the risk of poverty. In concrete terms, the effective retirement age should increase by one year in the short term.
In the same breath, the National Bank wonders whether this can be achieved so easily. The same applies to increasing the productivity of Belgian employees and boosting the employment rate in general. These are the most effective and least harmful options, but Belgium has been scoring below average on both parameters for years.
A fourth option is the most explosive: reducing the average pension or at least increasing pensions. “Whether that scenario strikes the right balance between ensuring financial sustainability and the adequacy of the pension system is open to discussion,” the National Bank said. But according to the bank, a certain reduction should be considered, as it will result in significant and lasting savings.
Unizo responds to the publication with its own proposals, such as limiting the equated periods to a maximum of five years.
The measure, which has a high political science fiction content, must be targeted, the National Bank emphasizes. ‘A reduction in (the increase in) the average pension is preferably done at the expense of the highest pensions, so as not to increase the risk of poverty.’
According to Unizo, pensions will become unaffordable without thorough measures. The self-employed organization responds to the National Bank’s publication with a series of its own proposals, such as the total abolition of the equalization of civil servants’ pensions (so that they increase along with the wages of active civil servants), linking a pension penalty (which financially punishes early leavers) the pension bonus and limiting the duration of the equated periods to a maximum of five years.