Belgium's soaring pension spending "poses a significant risk" to its long-term financial sustainability, according to a recent analysis by the National Bank of Belgium (NBB).
On the current trajectory, the report estimated that Belgium's annual pension expenditure will rise from 11.5% of GDP in 2023 to 13.5% in 2070. This would be 3 percentage points greater than the eurozone average.
The NBB attributed the surging costs to Belgium's relatively low employment rate, its early retirement age, and its high per capita pension spending. At €1,628 this is currently 25% above the eurozone average.
"An increasing share of the population is retired, while the working age population, which has the potential to fund pension expenditure, is shrinking," the report noted. "This situation puts public finances under pressure and raises the question of the sustainability of public spending on pensions in Belgium."
A worrying context
The report emphasised that Belgium's high pension expenditure comes against the backdrop of a worsening fiscal crisis.
According to official EU estimates Belgium's budget deficit is on course to reach 5% of annual GDP this year – up from -3.9% in 2022. Its public debt is predicted to grow from 105.1% to 106% over the same period.
Belgium's deficit and debt levels are well above the EU's thresholds of 3% and 60% of annual GDP respectively. Both limits are set to re-enter into force next year after being suspended during the Covid-19 pandemic and subsequent energy crisis.
To address the situation, the NBB called on policymakers to increase the proportion of Belgian workers over the age of 65 who are active in the labour market. This, it claimed, will "simultaneously reduce pension expenditure, increase GDP, and lower the risk of pensioner poverty".
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The NBB also called for per capita pension spending to be cut, although it warned that "any trimming of (the increase in) the average public pension should preferably be at the expense of the highest pensions, so as not to exacerbate the risk of poverty".
Finally, it suggested that with the national healthcare system under increasing strain, cutting pension spending is necessary to bring Belgium's deficit below the EU's 3% limit.
"Given the current high structural deficit, the projected increase in total ageing costs (including healthcare) by more than 4 % of GDP in the coming decades, the challenges raised by the climate transition, rising interest rates on public debt, and the high tax burden, this task appears impossible without significantly curtailing the projected increase in pension expenditure as a share of GDP."
