Generous to a fault
Belgium’s 150 MPs retire on one of the most generous pensions of any parliamentarians in Europe - some 75% of final salary - which compares with around two-thirds of final salary in most other cases.
But in terms of the length of time it takes to accumulate a full pension, the Belgians have not made it to the giddy 12-year heights of the Norwegians and Swedes, for example. It takes MPs in Belgium 20 years to accumulate their full pension, which is much closer to the European mainstream.
For those MPs who get that far the 75% is very good news. But in fact they are very few and far between. As Herman Decroo, speaker of the Chamber of Representatives, explains: “Only 5% of MPs end up qualifying for a full pension,” he says. “Around a third of MPs do not last longer than one term of four years, and a half do not make it beyond a second term.”
The average length of a parliamentary mandate is eight years – and shrinking. So it comes as something of a surprise that the minimum length of service required to qualify for a pension is itself just eight years.
The political landscape used to be even less compatible with the long qualifying period. “In the past we had very short parliaments of three years, two years or even just a year,” says Decroo. “During this time a lot of people disappeared at the following election without any pension entitlement. But they paid into the fund. So the fund is also fed by people who pay and never get anything. Now the legislature is more stable and terms usually last the full four years.”
He adds: “Job security is nil. So it’s not surprising that people regard a career in politics as risky.”
Poor job security doesn’t do much for the attractiveness of a career. Decroo notes: “Someone of 30 years of age considering a career in parliament will say ‘what happens to my house, my car and my family when I am out?’”
One measure that was brought in to deal with this issue is a system of compensation for MPs who leave parliament without a job to go to. Six years ago a system was introduced under which MPs who have served at least one full term are entitled to a year’s salary to give them the time to look for new employment or retrain for a new profession. This amount increases by two months for every year of service up to a maximum of 20 months at eight years’ service.
At the heart of the measure is the need to shore up the democratic process. “We introduced this measure to increase the quality of entrants and to have a larger selection,” says Decroo. “And this is starting to have the desired effect.”
These extra months of pay are considered as extra years of service for the purposes of calculating the pension entitlement. For example, someone leaving parliament after 12 years would receive two years and four months’ compensation, and so the effective length of service for pension purposes would be 14 years and four months.
The pension accumulates at a uniform rate of 3.75% for each year of service. Service as a minister, as one of the 71 members of the Senate or as an MEP counts towards this total. The ‘employee’ contribution is 8.5% of salary, which represents a third of the total contribution to the pension.
The pension is based on an MP’s salary of E70,605, which in turn is based on the salary of a judge in the Conseil d’Etat (supreme court), and which remains the same regardless of an MP’s length of service. Surviving partners receive up to 60% of the pension that the MP would have received.
Until 10 years ago, half the salary consisted of an expense allowance which was not taxed. “People didn’t have to prove their expenses in those days,” says Decroo. When the system was abolished the parliamentary salary was increased by 28% to compensate, and so the pension increased accordingly.
But Belgians do not consider the pension for their parliamentarians particularly generous. Indeed it is not an issue that has attracted much attention among MPs, or the general public for that matter. “People know that most of the parliamentarians don’t stay in office very long,” says Decroo. “So they know that the pension MPs will receive from their parliamentary service will be relatively small.”
He adds: “Furthermore, the full pension as a percentage of final salary is not high compared with other professions. Broadly speaking, pensions range from 60-75% of final salary.”
And while MPs are able to retire at the age of 55, early retirement is widespread in Belgium to the point that the government is now planning incentives to encourage people to work longer.
As far as public relations on pensions are concerned, Belgian MPs could not be accused of feathering their own nests while neglecting the pension needs of the population as a whole. The new system of sectoral pensions introduced at the beginning of last year with the aim of boosting second-pillar coverage, has attracted over a million members with the aim of 100% coverage.
Those MPs who do not serve long enough to qualify for a pension do not receive a refund of the amounts that have been contributed to their individual funds. It is partly a result of this that many MPs who have served just one term often choose to make a further three years’ contributions on top of the one year of compensation to gain entitlement to the minimum pension. This is more common among older MPs; it is relatively seldom among members in their
There have been other moves to improve the package offered to parliamentarians. In the case of those coming to parliament from the teaching profession, for example, the system was changed so that on taking the oath an MP would not lose his or her teaching job but would instead be granted leave. “The change regarding teachers was made possible when education was transferred to the regional parliaments,” says Decroo.
The remuneration package for MPs looks even less generous when one considers the deductions that have to be made to the political party of which the parliamentarian is member. Members of the Flemish Green Party pay 45% of their salary to the party, for example, while the White Separatist Party seeks a deduction of 15-20%. These amounts are in addition to public money received from the parliament which is based on the election result. “It is forbidden for political parties to receive money from the private sector,” says Herman Matthijs, senior lecturer in political science at the Free University of Brussels.
The pension system for Belgium’s parliamentarians shares an interesting similarity with that of their French counterparts in that the MPs’ scheme is based on the pay-as-you-go principle, while that of the senate is funded.
Ministers of government are members of the senate scheme. Until 10 years ago they didn’t accumulate pension rights at all. They were then offered the choice between membership of the MPs’ scheme and the funded senate scheme and decided that they preferred the principle of capitalisation.
But perhaps now they are wishing that they could turn back the clock. The house of representatives pension fund is currently in deficit. Matthijs notes that “the fund stood at E250m in 2001 but the fund lost a lot of money as a result of the stock market crash”.
Matthijs notes that MPs are not very open about discussing their remuneration, particularly when elections are looming.
Joseph Vuchelen, professor of economics at the Free University of
Brussels argues that the problem is more fundamental. He says: “There needs to be better governance among MPs regarding their pension; they need to show what they are doing in the management of their pension scheme.”
At a time when governance is moving to the foreground of institutional investment and the pensions debate in particular, this may be an issue which will have to be dealt with, sooner rather than later.