Copyright © BusinessAMBE 2023

Pension spending in Belgium is going to increase faster in the coming decades than in most European countries. So says a study by the National Bank (NBB).

To stop the slippage in Belgium's public debt (currently 104 percent of GDP), the budget deficit must come down. "This task seems impossible without significantly reducing the expected increase in pension spending relative to GDP," writes the National Bank.

In the news: Based on previous reports by the European Commission and the Study Committee on Aging, the National Bank's experts compare how Belgian pension spending will evolve versus that in reference countries such as the Netherlands and Germany. The conclusion: Belgium is one of the euro countries where pension costs will rise fastest in the coming decades.

Graphic: When you plot expected pension spending against expected gross domestic product (GDP), the picture becomes quite clear:

  • Belgium's pension spending is on an upward trend until around 2050, when it stabilizes around 15 percent of GDP. That is three points higher than the eurozone average (EA on the chart).
  • Germany and the Netherlands, two countries with much lower debt ratios than Belgium, are stabilizing at significantly lower levels.
  • And if you compare with France, Italy and Spain - countries that, like Belgium, have high debt ratios - it is noticeable that in those three countries, pension expenditures become less important after several decades, which translates into a declining curve, unlike Belgium's.

Graph: pension spending as % of GDP (for four countries and the euro area)

The gist: "Consequently, Belgium is expected to have the highest level of pension spending of the reference countries at the end of the period, in 2070," the NBB concludes. "This is because the average age at which we stop working is generally lower, our employment rate is lower and our average pension is relatively higher."

Pension reform

On a positive note: According to the technical simulations, the government can improve the financial sustainability of pension spending through a combination of policy options, although this may require "bold" pension reforms by future governments. Purely mathematically, there are four options, the study lists:

  • reduce the number of pensioners
  • lower the average pension
  • increase the overall productivity of the economy
  • raise the employment rate by increasing the number of people in work

A start: What labor economists have been stressing for years: if older workers stay in the workforce longer, you strike a double blow: the pension system is funded longer and there are fewer retirement years to pay after their careers.

  • Literally, "The most welfare-enhancing policy option is to increase the employment of older workers, since this simultaneously reduces pension spending, increases GDP, and reduces the poverty risk for retirees," NBB experts also write.

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