Before they were united in the 19th century both Germany and Italy were described as geographic expressions rather than countries. There are those who suggest that the same thing might be said now of Belgium.
Throughout the second half of the 20th century the central government responded to friction between the once-dominant francophone Walloons of the south and the increasingly economically forceful Dutch-speaking Flemings in the north by surrendering a growing number of powers to the two regions. The result today is that there is very little that could be said to be Belgian except the king, the flag, the armed forces and passports. And the pension system.
“Despite some differences in longevity between Flemings and Walloons pensions is one of the few areas in Belgium where the language divide has not had an impact,” notes Hugo Clemeur, general secretary of the Belgian Association of Pension Funds (BVPI). “There is one state pension system for the whole country not two, and second pillar systems make no distinction between the north and the south.”
But there is a danger that disagreements over future funding could exacerbate communal fault lines. The collapse of the south’s heavy industrial base left it with a legacy of high unemployment. The previously more backward north embraced more modern commercial and industrial activities while simultaneously the population balance tilted in the Flemings’ favour. The Flemings see themselves as hard working and characterise the Walloons as feckless, a perception that is sharpened by budgetary transfers from north to south to support disability and healthcare benefit payments.
And the pension system has long been a political issue in Belgium. “In 1990 Guy Verhofstadt, the leader of the then-opposition Liberal Party, tried to create some fear in the population about the future of the pension schemes,” recalls Guy Tegenbos, political editor of daily newspaper De Standaard. “His comments drew harsh criticism from the governing coalition of the time, which consisted of the Socialists and the Christian Democrats. They were the authors of Belgium’s social security system, it’s seen as theirs and they consider themselves its guardians. The Liberals are not seen as having a stake in the system and indeed are viewed as its enemy. Consequently, the consensus was that Verhofstadt had been too outspoken.”
The incident has resonance today because Verhofstadt is the current prime minister, and when in 1999 he had the opportunity to head a coalition government with the socialists, the price was that he had to tone down his rhetoric on pensions. Both parties are also part of the present government.
“He had to show he was not the enemy of the system and the Socialists barred him from saying that there was a problem, he could only say there is a solution,” adds Tegenbos. “And from then on we have only had the Socialist version of the situation, which is that is that while there is no problem we have to be cautious and take some measures, but that’s all. So although everybody knows there are problems, nobody in the government says it. And that’s a problem.”
But whatever the tactics, politicians were well aware of the issues. “As pensions minister in 1992 I initiated a demographic study that confirmed that we would have problems from 2010 in financing the first pillar_PAYG pensions system,” says Freddy Willockx. “So in 1993 I organised a roundtable discussion on its future financing and during the brainstorming I became convinced that we needed a second pillar based on solidarity like the first pillar.”
“He was the first pensions minister to raise the need to tackle the retirement issue,” says Henk Bacquaert, special representative at regulator CBFA who has been closely involved with the pensions issue for more than a decade as an advisor to all three of Willockx’s successors. “And although he moved on before putting his ideas into action, they have since become the basis of the pensions debate, including a realisation that we should not choose between funded and PAYE but that we need both of them, and that we have to do something about the retirement age and the level of debt.”
The culmination of the debate was the Vandenbroucke Law, named after one of Willockx’s successors, which was passed in May 2003 and came into effect at the beginning of 2004.
“The Vandenbroucke Law constructs a pension scheme between the state first pillar and a totally commercial third pillar that will be socially corrective and organised on a not-for-profits basis,” says Tegenbos.
Belgian political parties are also split along linguistic lines and there is a discernable difference between the Flemish and Walloon Socialists on pensions, with the Flemings tending to be less doctrinaire. Consequently, the Walloon Socialists initially opposed the reform proposals of Vandenbroucke, Vandenbroucke one of a succession of Flemish Socialists to hold the pensions ministry. An intra-party debate ended in a compromise that added a requirement to give equal representation to union and employer representatives on pension fund boards.
“Before Vandenbroucke, second pillar pensions were considered something solely for white-collar workers, the idea being that the state pension should be perfectly adequate for the common working man,” says Clemeur. “And although it’s too early to draw any conclusions, initial results show a level of interest in complementary pension systems from a certain number of industries.
However, a major problem is the level of contributions. “Most new industry-wide pension systems have been funded by allocating a small share of any salary increases negotiated on a collective basis to pensions,” says Clemeur. “We have a rule of thumb that a contribution of 1% of a salary over 40 or 45 years provides an extra pension of approximately 2.5% of final salary. So if you want an extra pension of 25% of final salary over and above the state pension, the contribution must be around 10%.”
The unions know the mathematics but do not share the goal. “We did not oppose second pillar industry-wide pension funds because we wanted it to narrow the gap between the wages and advantages of white- and blue-collar workers,” says Karel van Gutte, a member of the advisory board of the metal sector fund, a member of the advisory body to the pensions minister and president of his own union pension fund. “But we do not want the second pillar to become too big and replace the first pillar. Trade union thinking is that the second pillar should provide a ‘little wallet’ on retirement, something like pocket money. When we started the metal workers’ sector pension fund the amount was 1% of a gross salary and in the 2005-06 biannual branch level collective negotiations we managed to achieve a 0.1% increase to take it to 1.6%, and maybe we will arrive at 2%. After 40 years that would give a lump sum payment of e50,000 or e60,000, which is a nice amount to have when you retire. But this is not something that the government can use to solve the financial problems of the retirement system.”
And one of the ways of ensuring that the second pillar funds do not become too big is to oppose employee contributions to them.
“We are confronted by a double problem,” says Pieter Timmermans, director general of the Federation of Enterprises in Belgium (FEB). “The first aspect is ideological – the trade unions are in favour of the first pillar, solidarity and so on, and are not in favour of the second pillar – so the government imposed it. The second is on the employers’ side. We have said we are ready to build the second pillar schemes with the unions, but they have to accept that we can’t pay the same euro twice, it goes either to a wage increase or we put it into a pension fund.”
And Timmermans sees problems in the unions’ rejection of employee contributions. “This is one of the reasons why there is not so much enthusiasm for the industry-wide funds from the employers’ side,” he says. “If there’s an acceptance of 100% of contributions coming from employers it would be virtually impossible to change it at a later date. And there are employers who say that when there are employer and employee contributions we accept that both parties be represented on the fund’s board, when we are paying all the contributions the government and unions should accept that we should have a certain freedom to decide how we invest the money. It’s a difficult point.”
And the coming months will see the opening of another politically fraught front, the question of early retirement. “The average Belgian worker retires at 58, which is one of the lowest ages in Europe,” says Clemeur. “This is the result of a government strategy from the 1980s to encourage elderly workers to leave the workforce in the hope that they would be replaced by the young unemployed. Elderly employees took up the offer and although the process had little impact on unemployment, early retirement has come to be seen as a right by most Belgian workers while employers have seen it as an opportunity to shed elderly workers, especially after the mergers and acquisitions seen over the past 15 years or so. And even trade unions accept it on condition that a good early retirement system is established.”
“The retirement age has to rise,” says Bacquaert. “But the unions say provide us with employment and employers say that as long as we have good early retirement schemes people will want to go into them, so first we have to address that so that people need to find work. That’s the debate.”

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