According to the latest European Pension Adequacy Report 2012 of the Council of the European Union, employees in Belgium have one of the shortest average careers compared to other European countries.
The EU-report reveals that, on average, employees in Belgium have a career of only 32.5 years, whereas Belgium’s pension system is calculated on the basis of careers of 45 working years. This explains why Belgium has problems making the ends of its pension funds meet and why the average pension in Belgium (except for permanent government officials) is relatively low.
With men and women having an average career of respectively 35 and 29.9 years, Belgium performs well below the European average, ranking among Eastern European countries such as Romania, Bulgaria and Poland. Although Belgium often takes the Scandinavian welfare states as a model, it clearly cannot match the “working life” duration of these countries. The average career of employees in Scandinavian countries (and also the UK and the Netherlands) is between 7.5 and 4.3 years longer, which means that these countries can delay the paying out of pensions and increase the monthly pensions accordingly.
The major consequence of a short working life is that an average pension in Belgium is low. This has led to 19.4% of Belgian pensioners living under the poverty line, which is high for a welfare state as Belgium. Not surprisingly, the EU-report also refers to Belgium’s automatic wage indexation system, by which pensions are automatically adjusted to inflation. Out of the 27 EU-member states, 16 use an index mechanism that couples pensions to the evolution of wages and welfare. Belgium does not have such a system (except for the calculation of pensions of permanent government officials), which is a second explanation for poverty among the elderly. Their pension, calculated years ago on a low wage will gradually diminish when compared to the current evolved living standards if not corrected. In other words, indexation alone does not allow for benefits to keep track of the evolution of wages in real terms. That is why, every few years, the Belgian government has to take emergency measures to prevent a large number of elderly falling into poverty.
The EU-report recognizes that Belgium has taken a number of good first steps towards extending careers, such as reforms of the different early retirement schemes. However, longer careers also demand an adjustment of labor conditions, while the need for the overall implementation of supplementary pensions becomes clearer each day. However, second pillar pensions in Belgium are not yet generalized or compulsory and even if such schemes are foreseen in collective agreements, a large part of the private sector workforce in Belgium does not yet benefit from second pillar pensions.
AmCham Belgium’s position
The results of the European Pension Adequacy Report 2012 confirm AmCham Belgium’s beliefs that workforce participation in Belgium needs to be increased in order to create a more sustainable social security system. The government should therefore reward companies that keep older people in the workplace longer and discourage early retirement of older workers by further reducing and even eliminating early retirement benefits. Moreover, the effectiveness of the pension bonus system should be increased to €1,2503 per extra year worked and should be made available to workers from the age of 60, while strengthening the eligibility conditions of the system. To see more of AmCham Belgium’s recommendations for a sustainable social security system, see the 2012 Priorities for a Prosperous Belgium.