Belgium: Funding decision awaits new government

The new Belgian government, which is yet to be formed after parliamentary elections in June, has its work cut out. In July, it became clear that The European Commission had refused to pay out €31m in COVID recovery funds because the government had failed to sufficiently improve the long-term sustainability of the country’s pension system.

Last summer, the Belgian government hammered out a revised pension deal capping pensions for civil servants. The new deal was necessary since the government had linked a cost-saving pension reform to receiving a €847m payout in EU funds through the EU COVID Recovery Fund.

It has now turned out, however, that the savings the government agreed on last year are not sufficient, according to the European Commission. If the next government presents additional cost-saving plans by March 2025, the money can still be paid out. 

The chances that the new government will be able to carry out more ambitious pension reforms that include cost savings as well as a strengthening of the second and third pillars, perhaps look higher than ever as the coalition will most likely not include any socialist party. 

The socialists, especially those from the French-speaking south, have always fiercely defended generous state pensions. “For us socialists, the pensioners of today and tomorrow will never be a budgetary variable,” outgoing pension minister Karine Lalieux, of the French-speaking Parti Socialiste (PS), said at a press conference in which she announced the need for additional reforms. 

The two parties that are likely to form the backbone of the new Belgian government, the conservative Nieuw-Vlaamse Alliantie (N-VA) and liberal Mouvement Reformateur (MR), both advocate structural reform of the pension system and the labour market. 

N-VA, the largest party in Dutch-speaking Flanders, wants a strong link between years worked and the pension someone is entitled to. The party wants to introduce a system based on pension points, whereby everyone will get one pension point for every year of full-time work. Early retirement will only be possible after at least 42 years in work.

The party also wants to strengthen the second pillar and introduce a mandatory pension contribution by the employer of at least 3% of gross salary, with a view to increasing this to 5%. According to the umbrella organisation of Belgian pension funds, PensioPlus, less than a quarter of Belgian workers currently have an annual pension contribution in excess of 3%. 

MR, which won the elections in French-speaking Wallonia, is less specific in its electoral manifesto. However, it wants to see years in work reflected better in the amount of pension received. It also wants to increase the replacement ratio for the average worker to 75% of the final salary, up from 62%. The party does not say how it wants to achieve this but a significant increase in pension contributions in the second pillar seems inevitable.