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Berghman, J. & Peeters, H. (2012). Pension Protection in Belgium. Text prepared for the workshop on the occasion of the honorary degree of John Myles by the KU Leuven.

Berghman, J. & Peeters, H. (2012). Pension Protection in Belgium. Text prepared for the workshop on the occasion of the honorary degree of John Myles by the KU Leuven.

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Berghman, J. & Peeters, H. (2012). Pension Protection in Belgium. Text prepared for the workshop on the occasion of the honorary degree of John Myles by the KU Leuven.
Berghman, J. & Peeters, H. (2012). Pension Protection in Belgium. Text prepared for the workshop on the occasion of the honorary degree of John Myles by the KU Leuven.

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PENSION PROTECTION IN BELGIUM. OVERVIEW AND CHALLENGES
Text prepared for the workshop on the occasion of the honorary degree of John Myles by theKU Leuven
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 Jos Berghman & Hans Peeters(all comments are welcome: e-mail jos.berghman@soc.kuleuven.be orhans.peeters@soc.kuleuven.be)
INTRODUCTION
An increasing number of people are reaching the retirement age and the length of their retirement isspanning an increasingly long period of time. While in 1950, a 65 year old man was expected to live,on average, for another 12 years, in 2009 this had lengthened to 17 years. During this same period,life expectancy among women after retirement age increased from 14 to 21 years (Veys, 1983;“Human Mortality Database”, 2012). It is not surprising therefore that the pension debate has, forsome time now, dominated scientific and political discourse with the focus primarily on theaffordability of pensions. The Belgian Study Committee on Ageing, for one, annually publishesupdated statistics that clearly show the increasing additional cost of pension protection (e.g.Studiecommissie voor de Vergrijzing, 2011). Recent pension reform measures, such as raising theearly retirement age, have also largely focused on pension affordability. While this focus iswarranted, it has to be complemented with an analysis of the distribution of current pensionprotection among diverse categories of the population. In this analysis, the dual goals of pensionprotection must be central: Procuring a minimum income for the elderly, and ensuring that theelderly can maintain an acceptable standard of living. The question at hand is, therefore, not simplywhether pensions are and will remain affordable, but whether they also meet these dual aims.In this contribution, pension protection in Belgium is analyzed in two ways. In the first section,we present an overview of the regulations that shape pension build-up in Belgium.
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This overviewshows that pension build-up is contingent upon the characteristics of people’s careers and their civilstatus. To see how these regulations work in practice, the second section complements this overviewwith empirical findings regarding the distribution of actual pension protection of current pensioners.The combination of factors presented in both sections allows us to focus, in a third and final section,on a series of challenges that current pension protection faces.
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The authors would like to thank Anke Mutsaerts for the analyses and Hans Knapen for his contribution to theconversion of gross to net pension benefits. Furthermore, we would like to thank Elke Brungs, Annelies Debels,Rika Verpoorten, Giselda Curvers and Hendrik Larmuseau for their valuable comments. Finally, we are alsograteful to Chris Brijs for his help on the manipulation of the basic datasets.
2
The overview concerns the situation as it was before parts of the new coalition agreement were put intoplace. Changes (to be) made as a result of this coalition agreement are discussed in footnotes.
 
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1. PENSION REGULATIONS
In order to structure our overview on pension regulations in Belgium, we make use of the ‘threepillars’ concept. This concept was developed in the early 1980s as a means of better understandingthe merging of private and public elements in social security (Gieselink, Peeters, Van Gestel,Berghman & Van Buggenhout, 2003).No consensus has so far emerged on a universal definition of the three pension pillars;different authors use distinct definitions (for example, Adema and Ladaique, 2005; Pedersen, 2004).In this text, the distinction between the different pillars is made on the basis of a double criterion.The organization responsible for the financial management distinguishes first-pillar pension fromsecond- and third-pillar pensions. While in the first pillar management is in the hands of publicinstitutions (central government, local governments or social security institutions; cf. OECD, 1999), inthe second and third pillars this is the responsibility of private institutions. The second criterionconcerns the labor market-related nature of pension build-up and thus distinguishes first- andsecond-pillar pensions from third-pillar pensions. In sharp contrast to the first two pillars, anyone cantake part in the third pillar, regardless of his or her specific employment situation. On occasion, azero pillar is also distinguished, which consists of social assistance benefits that ensure a minimumincome for the elderly. Entitlement to the latter benefits is independent of previous labor marketparticipation but is means-tested and therefore only granted if total income remains lower than thelegally defined threshold.
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1.1. First pension pillar
Within the first pillar two
types
of pensions are distinguished: the retirement pension and thesurvivor’s pension; and three different pension
schemes
exist: the employee pension scheme (whichalso includes civil servants with a normal labor contract [contractuele ambtenaren]), the self-employed pension scheme, and the (statutory) civil servant pension scheme.
1.1.1. The retirement pension
A retirement pension is paid to elderly that have been formally employed. Currently, to be able tobenefit from a retirement pension, one has to be 65. However, an option exists for early retirementfrom the age of 60 and on. In order to be eligible for an early retirement pension, employees as wellas the self-employed have to have had a career of at least 35 years. Notably, for the self-employed(unlike for employees), early retirement leads to diminished pension rights. Early retirement as a civilservant is also possible, provided that one’s career as a civil servant has lasted at least five years.
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 The way in which pensions are calculated strongly differs according to the pension scheme.
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For didactical purposes, certain complexities in pension legislation are not discussed. For a detailedexamination of existing legislation, see Stevens (2011a; 2011b) (for the first and second pension pillar foremployees and the self-employed), PDOS (2011a; 2011b) (for civil servants), Gieselink et al. (2003, pp. 48-54) orVan Eesbeeck & Vereycken, 2010, pp. 261-287) (for the third pension pillar) and Stevens (2011c) (for socialassistance benefits for the elderly).
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The new coalition agreement (‘Ontwerpverklaring over het algemeen beleid’, 2011, pp. 102-103) changes theconditions for early retirement. As a general rule, in all pension schemes, early retirement is only possible fromthe age of 62 onwards and after having worked for 40 career years.
 
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Retirement pensions for
employees
are calculated on the basis of three components: the length of the career; the gross wage received for each year of that career; and the family situation of thepensioner. A full pension is reached after 45 formally employed years. For each of these employedyears, the gross wage earned is (largely) inflation proofed
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and capped (above a certain wage levelcontributions are calculated on the total wage but pension benefits are only based on the cappedwage).
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In contrast to most other OECD countries (OECD, 2011, p. 110), in Belgium wages are notrevalued (adapted to the changes in the general welfare level).
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Pensioners married to someonewithout any (or with a limited) income, are entitled to a ‘family’ pension, which is calculated at thefamily rate (75% of previous wage). Other pensioners are entitled to pensions at the single rate (60%of previous wage). Hence the formula used to calculate pensions per employee career year is asfollows: (gross salary of the year/45) x (60% or 75%). The calculation is made separately for eachcareer year and then all partial amounts are summed.The calculation of the retirement pension for the
self-employed 
is comparable to that of employees, excepting that professional income rather than wage is used; career years before 1984are based on a fixed amount; and from 1984 onwards, adaptation coefficients are used that initiallycompensated for the differential contribution level between employees and the self-employed. Theself-employed pay a lower contribution rate and therefore build up fewer pension rights thanemployees. Thus, the formula used from 1984 onwards to calculate pensions is as follows:(professional income/45) x (60% or 75%) x adaptation coefficient. Similarly, the calculations are madefor each year of the career and then all separate amounts are summed.The retirement pension for statutory
civil servants
is based on the average wage of the last fiveyears of the career and is also linked to the number of career years.
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On the basis of each careeryear, one is entitled to one sixtieth of the average salary (cf. disregarding existing more preferentialpension formulas). Therefore, a complete career of 45 years amounts to a pension of 75 percent of the average wage of the final five career years. In contrast to the employee and self-employedschemes, the family situation of the statutory civil servant pensioner is not taken into account. Thisleads to the following pension formula: (average wage of last 5 years/60) x number of career years.As the civil servant pension is calculated based on the last five career years (and thus not on theaverage career wage), the reduction of income after retirement is minimal when compared to that of employees and of the self-employed.In all three pension schemes, a guaranteed minimum pension [Gewaarborgdminimumpensioen] exists. In January 2008 this minimum pension was €919/€1.149 (single/familyrate) for employees; €814/€1.082 (single/family rate) for the self-employed and €1.077/€1.346(single/family rate) in the civil servant scheme, provided that the pensioner had worked a full career
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Previous wages are not completely inflation proofed because several index adjustments have not taken placein the 1980’s and because as of 1994, the health index [gezondheidsindex] is used as an index mechanism. Thisindex does not take into account all possible costs that affect general welfare such as the rising costs of fuel.
6
The cap on wages amounted to €47.960 in 2010. For the sake of comparison, a research assistant at the KULeuven with 12 years of service has a gross wage of €48.807.
7
In the employees scheme a sort of revaluation existed for the wages earned between 1955 and 1974, butsince 2005 this no longer applies.
8
The coalition agreement (‘Ontwerpverklaring over het algemeen beleid’, 2011, p. 103) stipulates that civilservants’ pensions will be calculated on the basis of the final ten, rather than on the final five career years.

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