Belgium has reined in pension spending less than other European countries

According to the European Commission’s latest ageing report, Belgium is one of the euro area countries in which pension spending will rise the fastest in the coming decades. This is because the average age at which Belgians stop working is lower, as is the country’s employment rate, while the average pension is relatively higher.

Belgium, like other European countries, is currently experiencing a grey wave. An increasing share of the population is retired, while the working age population, which potentially funds pension expenditure, is shrinking. This trend will only become more pronounced in the coming decades. According to the Study Committee on Ageing’s 2023 Annual Report, public spending on pensions is projected to amount to 11.5% of GDP in 2023 and to rise to around 13.5% of GDP as from 2050.

Moreover, according to the European Commission’s latest Ageing Report (2021), pension spending in Belgium is projected to be higher than in the country’s neighbours (the Netherlands, Germany and France) and other high-debt countries (Spain and Italy) by 2070. This article explains that this is not due to more marked population ageing in Belgium. The ratio of the average pension to the average wage will be higher in Belgium than in neighbouring countries, Spain and the euro area on average. In addition, on average, it appears that workers leave the labour market earlier in Belgium than in the selected reference countries, with the exception of France. In this regard, the Belgian employment rate also lags behind that of neighbouring countries and the euro area average. It should be noted, however, that the European Commission’s employment estimates for Belgium were much more conservative than more recent estimates by the Study Committee on Ageing. On the other hand, in its 2021 report, the European Commission did not take into account the expected increase in pension expenditure resulting from the current government’s pension reforms.

Policy options

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.