Ageing, pension systems, fiscal sustainability and growth (BEL-Ageing). (BEL-Ageing)

All advanced economies are experiencing population ageing - characterized by a low fertility rate and a steady increase in life expectancy and its consequences in terms of public finances and potential growth. Some countries are more affected than others. Belgium is one of them. According to the projections of the European commissions Ageing Report (2012), public pension spending will increase from 11% to 16% of GDP between 2010 and 2060, the fourth strongest projected rise after Luxembourg, Cyprus and Slovenia. As its public debt and tax-revenue-to-GDP ratio are already very high, Belgium has no much fiscal leeway to absorb the expected increase in public pension spending without jeopardizing its fiscal sustainability, economic growth and welfare. Therefore, like many other advanced countries, Belgium will have to introduce pension reforms. All existing pension reforms already introduced in advanced economies consist in rebalancing the imputation of the cost of ageing from the active population to the retirees: increase in pensionable age, tighter conditions for early retirement and higher incentives to work after official retirement age. In Belgium, the labour market may be an additional area where reforms could have a positive effect on the sustainability of the pension system. According to OECD (2011), employment rates of older and low-skilled workers in Belgium are among the lowest in the OECD countries. Reducing this level of structural unemployment could substantially slow down the expected increase in the old-age dependency ratio.

Keywords:Ageing, Fiscal sustainability, Overlapping generations, Generational accounting, microsimulation, Pension reform

Disciplines:Applied economics