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Price of ageing population on the rise

Two recent publications by the European Commission – the 2012 ‘Ageing Report’ and the ‘Active Ageing and Solidarity Between Generations Report’ – have revealed a number of concerning facts about Belgium’s ageing population. Both reports are a clear call to action for the government.

According to the 2012 ‘Ageing Report’, the Belgian government’s public pension expenditure will increase from 11% of Gross Domestic Product (GDP) in 2010 to 16.6% of GDP in 2060. The ‘Active Ageing and Solidarity Between Generations Report’, on the other hand, shows that 20% of early retired Europeans come from Belgium.

Although the 5.6% increase in public pension expenditure over 2010-2060 (in % of GDP) is significantly more than what the Federal Planning Bureau’s Commission for Ageing Population calculated over the past years, the European Commission admits that their latest report does not take into account the measures on bridge pensions, early retirement and the new calculation of the government pensions taken by the Di Rupo government after December 2011. However, an unpublished preliminary report by the FPB measuring the budgetary impact of these reforms by 2060 revealed that the costs of the ageing population in Belgium would only decrease the growth of GDP by 0.4%.

The answer as to why these costs are increasing so dramatically can be found in another European Commission publication, namely the ‘Active Ageing and Solidarity Between Generations Report’. This study revealed that 212,863 out of 1,049,502 or 20.3% of early retired Europeans come from Belgium. Only Italy has more early retired than Belgium – 320,000 or 30.5% of early retired Europeans – but, then again, it also has 60mn inhabitants.

According to Bram Delen of the Cabinet of Minister of Pensions, Vincent Van Quickenborne (Open VLD), these figures are high due to the large number of retirees benefitting from a bridge pension, an almost exclusively Belgian system. The EU calculated that, in 2009, early retirement schemes cost Belgium €2.6bn or 0.76% of GDP, which is almost ten times more than the 0.08% EU-average.

With the government’s pension reforms coming into practice, it is expected that the pension expenditures will decrease during the next months. How much they will decrease will be revealed in the yearly report by the FPB’s Commission for Ageing Population, to be released before the October 14 local elections.

AmCham Belgium’s position

The European Commission reports confirm AmCham Belgium’s stance on how the sustainability of the social security system in Belgium is undermined by the increasing cost of the ageing population and, more specifically, the early retirement schemes. The government has taken good steps concerning pensions, such as gradually increasing the minimum retirement age to 62 and increasing the career length necessary to fully benefit from the retirement schemes. However, it is clear that more work is needed 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 and eligibility conditions of the pension bonus system should be increased. To see AmCham Belgium’s recommendations for a sustainable social security system, please see the 2012 Priorities for a Prosperous Belgium.