Belgium will, this autumn, bear witness to some of the most significant pension proposals tackled by its parliament.
Faced with the problem of mounting future projections for the maintenance of its social security system in a country with one of Europe’s highest debt ratios and lowest number of people in unemployment after age 55 – the Belgian government has been spurred into action.
On October 18, Belgian prime-minister, Guy Verhofstadt, will address the country’s retirement system in a speech proposing a string of measures to parliament. The move comes despite a politically charged environment ahead of local elections at the beginning of October.
Henk Becquaert, cabinet adviser to the Belgian minister of social affairs and pensions – Frank Vandenbroucke – a former president of the socialist party, says one of Belgium’s root problems lies in its high levels of early retirement. “In reality, the pension age in Belgium is the choice that people make for themselves.
“Employees have the possibility to take a pre-pension option at 60, but really they are leaving employment before this. “For men, the retirement age is near 60, but for women it is more like 55.”
In response, Becquaert says Belgium is examining proposals put forward at the recent EU summit in Lisbon for raising employment rates, which he believes will be vitally important for protecting future pensions.
One amendment already made has been the abolition of civil service pension quirks. “There are some schemes which allow the possibility to go on holiday leave at 55 for five years and then you can take your pension – so in effect, it is a pre pension arrangement.
“This year the allowances will not be taken into account for pensions.”
He notes that private sector changes are somewhat more difficult to effect – with many employers and employees quite happy to part company at 55.
“Another amendment has been that workers now lose no pension rights for taking on another job at this age – as opposed to staying unemployed.”
The real debate in Belgium, however, has been the proposed introduction of the ‘Silver Fund’ – a state sponsored pensions war chest of an initial BFr25bn (E600m) – along the lines of France’s Fonds de Reserve.
And the talk is as much about the philosophy behind it as the actuarially challenging calculations being used to justify its existence, although reports in Belgium says a consensus on its existence has been reached.
Belgium is now getting to grips with high debt ratios, which have plagued it in the past – the level was 135% of GDP at one point. Today the level is bordering on 100%.
The government’s argument goes that as the debt falls, so do interest payments – providing the means to reprioritise the country’s finance plans. A part of this will go towards plugging the pensions hole – invested via the Silver Fund.
Becquaert, explains: “The reality is that you reduce the primary surplus (income minus expenditure ex interest) slightly and create a margin to do other things. We can use these margins without a problem until 2010 when ageing problems come in.
“The way of selling this policy is the Silver Fund. It is only a way of accepting surpluses on an annual basis.”
The initial proposal of BFr25bn is mooted to arrive in 2002, when the country finally reaches a zero balance sheet. A further BFr25bn will be added annually and the fund will run for over 10 years.
“In the first years of the ageing problem (2010) we will continue to put money in, but the levels being withdrawn will be higher. We don’t know exactly when the cost will outweigh the fund – it depends on too many factors.”
In terms of investment, Becquaert says the money will be invested in government bonds to ensure that the country does not flout its European commitment to reduce national debt to 60% as quickly as possible. You can’t balance this by investing in the private sector.”