Now for the 'care fund'
Not content with local authority pension funds and the federal Silver Fund to help with their pensions and benefits problems, the ever forward thinking Flemish have also decided to set up a special “care fund”.
“This new fund will be launched by the regional government of Flanders and is designed to offer health and general care benefits to those who don’t have individual benefits or who can no longer effectively take care of themselves,” says Edwin De Boeck, managing director of KBC Asset Management in Brussels.
Unlike the much discussed but criticised Silver Fund, which isn’t a fund at all but a “disciplinary reserve”, the Care Fund will be a fully fledged dedicated investment vehicle. “The fund will receive an initial donation from the Flemish government of Bfr4bn (e99m) which will be invested mainly in equities,” says De Boeck, pointing out that the fund will become operational later this year.
As is often the case with schemes of this type undertaken by public authorities, the fund will be restricted, at least initially, and will have to display features which make it sympathetic to ethical and social funding. “But we don’t know how things will develop in the future,” De Boeck comments.
Nothing of this kind is being established in the French-speaking half of the country, despite the fact that the Silver fund development is federal wide. “The Care Fund is a purely Flemish initiative and will offer care assistance to Flemish Belgians only.”
De Boeck claims that this is leading to some political controversy in Belgium between the two linguistically distinct regions. “It’s simply a question that the economy in Flanders is in better shape than in Wallonia.”
The insurance generated by the fund is designed to allow monthly payments from January next year to approximately 20,000 over-65s who live at home and who are badly in need of extra care. The Flemish government hopes to extend this from July next year to include people in retirement homes, until eventually about 75,000 over-65s throughout the Flanders region (7.3% of all over-65s) will be eligible for some form of assistance. To extend the scheme further would cause a considerable financial drain on the fund, even though there are some under-65s that would benefit from it. Nonetheless, the continual extension of the fund’s target recipients is part of the plan.
“But this isn’t really new,” says De Boeck. “The issue of care insurance has been debated in Belgium since as far back as 1985 and was instigated at federal level.”
Initially, it was assumed that any concrete developments would form part of the national social security system. However, this would have led to considerable extra funding of the social security system and could have had an unfavourable effect on the level of wage costs. Since nothing came of the federal-wide discussions, the onus was put firmly on the communities, which have traditionally assumed responsibility for caring for the elderly in this respect.
So where does this leave the Silver Fund? “The Silver Fund may be called a fund but it isn’t a fund,” says De Boeck. “It is nothing more really than a disciplinary measure designed to help the Belgian government keep debts down.”
He suggests that the Silver Fund doesn’t go far enough towards solving some of the problems thrown up by changing demographics. “We are constantly witnessing a growing income gap between retirees and those that are still active and this is leading to a dual society. What we really need to do is create proper investment vehicles that can be capitalised.”
He believes that it is not true to suggest that there are no more pensions problems and that since it is a government managed reserve, the levels of income in the Silver Fund are not guaranteed. “The government is effectively buying back its own debt. The amount it puts into the fund is designed to remain constant at Bfr23bn each year, but how do we know this will be the case?”
Basically, De Boeck argues that the government may not honour its commitment, depending how the economy is doing in general. “GDP has already been revised downward this year, which means that funding levels may be changed. How do we know that they won’t resist the temptation not to fund at all?”
He does stress, however, that the Belgian government is fully aware that pension liabilities are set to grow steeply in the next decade.
Funding of the Silver Fund could have been better guaranteed had it been established at European level, argues De Boeck. “European directives could have been imposed to make sure that governments were committed to building up their reserves.”