Banque nationale de Belgique : Belgium has reined in pension spending less than other European countries

Rising ageing costs, including pension expenditure, are putting the sustainability of Belgium's public finances under pressure. The country's public debt, which currently stands at 104% of GDP, will continue to rise steadily in the coming years, driven by a structural budget deficit approaching 5% of GDP. To curb the increase in debt, it will be necessary to bring down the deficit. This task appears impossible without significantly reining in the projected increase in pension spending relative to GDP.

Our technical simulations show that a substantial reduction in (the increase in) the pensions-to-GDP ratio is possible by combining different policy options so as to steer the underlying factors of the ratio towards those of the reference countries.

The most welfare-enhancing policy option is to increase the employment rate of older people, as this simultaneously reduces pension spending, increases GDP and reduces the risk of poverty. Policies that boost GDP, by raising either employment or productivity, have the advantage of reducing not only the pensions-to-GDP ratio but also the general government expenditure ratio. Yet, higher productivity can only lead to a lower pension spending ratio if the pensions of current pensioners are not increased to the same extent. Finally, any reduction in (the increase in) the average pension should preferably be at the expense of the highest pensions, so as not to increase the risk of poverty.

Regarding the social sustainability of the pension system, our brief descriptive analysis shows that higher pension spending per pensioner in Belgium compared to neighbouring countries does not necessarily translate into a lower risk of poverty for the elderly.