Federal government reaches agreement on pensions reform: what will change and for whom?

Key ministers of the federal government spent the night considering pension proposals from Prime Minister De Croo (Flemish liberal/Open VLD) and Pensions Minister Karine Lalieux (Francophone socialist/PS). They have now agreed on a new package of measures to improve the financial sustainability of the pensions system.

The new package complements measures agreed in the pension package in the summer 2022 and austerity measures included in the March 2023 budget review.

The reforms - read savings - were needed after it became clear pension reforms and the budget put up costs. European authorities then objected.  There were even financial consequences: Belgium could only claim 850 million euros of European aid from the recovery fund if no adjustments were made.

So, what exactly has been decided? And on whom will it impact? Here's what we know:

1. For retired civil servants

There will be a capping of the so-called perequation. This is the mechanism that allows civil servants' pensions to rise along with the wages of civil servants, in addition to the index top-up. That increase will be capped at 0.3 per cent per year of the total civil servants' pension. There will also be no transfer from one period to another.

2. For people with a high additional pension

The "Wijninckx contribution" will be doubled from 3 to 6 per cent. This is the special social security contribution you have to pay on very high additional pensions (i.e., those of the "second pillar").

You will pay this contribution from the moment the sum of the statutory pension and the supplementary pension is higher than the highest statutory pension in the public sector.

3. For people who want to work longer

The pension bonus, which returned in last summer's reform, will be paid net and not gross. That pension bonus was a way of ensuring that it pays to keep working longer: those who do not retire early receive an extra sum for doing so.

Only after last summer's reform, it turned out that this measure cost too much money. The Europe authorities objected claiming the extra cost will jeopardise the affordability of pensions.

The changes now also mean that people who work longer can choose to get the bonus paid in one lump sum. That lump sum payment can amount to €22,645 if you work 3 years longer than the date on which you can retire early.

4. For people on minimum pension

Last summer, it was decided that people must have worked for 20 years to be entitled to a minimum pension. It’s a condition that did not exist until now. But to take into account career differences between men and women, more non-worked periods will be taken into account, such as maternity leave, paternity leave or temporary unemployment. Periods of regular unemployment will not be taken into account.

During the budget review of March 2023, it was decided not to go ahead with the planned additional increase in minimum pensions after all (called the "fourth minimum pension tranche" in Belgian speak). When it took office, the government had promised that minimum pensions would rise to 1,500 euros per month by 2024, but successive indexations have meant that this amount has already been reached. That’s why the government is scrapping the last tranche of the increase, which was planned for next year.

This decision has now also been confirmed in the present agreement. This will create annual savings of €126 million.

So, what will this yield?

All measures combined should reduce the cost of Belgium's ageing population by 0.5 per cent of gross domestic product by 2070, some €3 billion, according to government figures.

80 per cent of the savings come from the capping of increases in civil servants’ wages. It now remains to be seen whether all this will be enough for the European authorities.