Chapter 6 - The Social and Budgetary Impacts of the Recent Social Security Reform in Belgium

Summary

ABSTRACT

This paper discusses the impact of recent social security reform on the development of sustainability as well as adequacy in Belgium. The impact analyses in this paper have been done using two separate yet consistent models. The analysis of the budgetary impact is based on the MALTESE system of models (Model for Analysis of Long-Term Evolution of Social Expenditure). The analysis of the adequacy of the social security reform is done using the most recent version of the dynamic microsimulation model MIDAS (Microsimulation for the Development of Adequacy and Sustainability). The structural reforms of December 2011 reduce the budgetary cost of ageing by 0.3 percentage point of GDP between 2011 and 2060, evenly distributed between pensions, unemployment and Conventional Early Leavers’ Scheme / Unemployment with Company Allowance (CELS/UCA). Besides the direct impact of the measures themselves, the increased GDP resulting from the reform decreases, of course the weight of social expenses in percent of GDP. The risk of poverty rate of retirees decreases progressively as a result of the reform. In 2060, the reduction should reach 4 percentage points (4 percentage points for men and 5 percentage points for women). Furthermore, the poverty risk of male unemployed, in particular, increases considerably.

Keywords: Social security reform, Belgium, financial sustainability, adequacy, poverty.

INTRODUCTION

For many western countries including Belgium, population ageing constitutes an important budgetary and social challenge. They are therefore taking measures to deal with the issue. The Belgian governmental agreement of December 2011 included a social security reform which, for certain aspects, came into force in 2012.

The aim of those measures is primarily to strengthen the financial viability or sustainability of the social security system (specifically first-pillar – or legal public pensions), i.e. to reduce its costs in a context of demographic ageing, especially through limiting early retirement. However, such a series of measures inevitably also has consequences on the adequacy of pension benefits in the first pillar. The question then is how important those impacts are.

This paper aims to discuss the impact of the recent social security reform on the development of financial sustainability as well as adequacy in Belgium. The impact analyses in this paper have been done using two separate yet consistent models.