Title: LongTerm Prospects for Belgian Social Protection Presentation: Nicole Fasquelle, Senior Associate, F
1Long-Term Prospects for Belgian Social
ProtectionPresentation Nicole Fasquelle,
Senior Associate, Federal Planning BureauAuthor
Team Social Protection , Demography and
Prospective , FPB
- AIECE
- Working Group on Longer-Term Prospects and
Structural change - 5 November 2007
www.plan.be nf_at_plan.be
2Structure of the presentation
- The public Belgian social protection system and
population ageing - The institutional bodies studying the effect of
ageing on public finances - A possible scenario for the future
- Conclusions
3The public Belgian social protection system
- Act of 28 December 1944 establishing the social
security for all workers - The total social expenses represent 23.2 of GDP
in 2005. - Distribution of social expenses among branches
in 2005 - pensions 39 health care
31 unemployment 12 family allowances 7 - others 11
- Bismarckian system insurance system
- the contributions finance the social expenses
- (versus Beveridgian system or assistance).
- In practice, mixed system in Belgium.
- Weight of the financing sources in 2005 68
contributions and 32 taxes. - Public pensions system based on the pay-as-you-go
system
4 A future challenge for social protection
population ageing
- Population ageing (or ageing demography) occurs
when a growing part of the population reaches
greater ages (modification of the global age
structure). - This can result from declining fertility, or
rising life expectancy, or from a combination of
those two phenomena called demographic
transition . This is the case in the most
industrial countries and so in Belgium. - Those demographic phenomena can add further to
historical factors. In Belgium, the less peopled
generations born from 1965 onwards have low
fertility rates. The many generations born after
WWII are currently reaching retirement age and
will live longer.
5A rising life expectancy is a progress for
humanity but a burden for public finances.
- Decline in the population aged between 15 and 64,
which is most likely to pay contributions. This
means a decrease in the revenues for the State
(see insurance system of the social security). - Increase in the population aged 65 and more,
which is most likely to get a statutory pension.
This means a rise in the public expenses (see
statutory pensions based on the pay-as-you-go
system).
- Risk of a new large public deficit and of a new
snowball effect for the public debt.
6II. Institutional organizations studying the
effect of ageing on public finances
- At the international level
- IMF specific studies
- OECD Economic Policy Committee (either own
projections or international exercises for which
every country delivers its estimations Federal
Planning Bureau for Belgium) - European Commission GD ECFIN, Ageing Working
Group established in 2000 by the Economic Policy
Committee of the ECOFIN Council (international
exercises for which every country delivers its
estimations for pension expenditures, sticking to
common assumptions Federal Planning Bureau for
Belgium)
7Institutional organizations
- In Belgium
- In 1987, at the request of the government, the
Federal Planning Bureau started to develop the
Maltese system of models in order to assess the
long-term social expenditures within the overall
framework of public finances. This was done
within the framework of the statutory mission of
the FPB to support economic policy-making. - From 1987 to 2001, the Maltese system of models
was used at several times, either on the
initiative of the FPB or to support economic
policy-making (especially for measuring the
impact of various statutory public pension
reforms in Belgium 1990, 1996). - In 2001, the Law guaranteeing a continuous
reduction in public debt and the setting up of
the Ageing Fund.
8The Law of 5 September 2001 guaranteeing a
continuous reduction in public debt and the
setting up of the Ageing Fund
- Goal of the Fund to build up a demographic
reserve to finance the supplementary expenses
pertaining to the statutory pension schemes due
to ageing during the period 2010-2030, so long as
public debt has been reduced to 60 of GDP - Study Committee for Ageing Yearly report about
the budgetary and social implications of ageing
(estimation of the budgetary cost of ageing and
specific studies) the Federal Planning Bureau
entrusted with the technical and administrative
secretariat - The department Borrowing requirements of the
Public Sector of the High Council of Finance
Yearly Advice with recommendations for budgetary
policy (based on the annual report of the Study
Committee for Ageing) - Federal Government Yearly Memorandum on
Ageing (based on the annual report of the Study
Committee of Ageing and the annual Advice of the
department Borrowing requirements of the Public
Sector of the High Council of Finance)
9III. A possible scenario for the future The
tool the Maltese system of models
- System of models one central model and several
specific peripheral models (computing the number
of pensioners, average pensions, health care)
10The Maltese system of models
Demography by gender and age
Socio-demography by gender and age group
1
2
- Central model Maltese
- macroeconomic projection
- final socio-economic projection
- social policy and budgetary strategy
- budgetary cost of ageing
- public sub-sectors accounts
5
3
Calculation of number of pensioners by scheme,
gender and age
5
5
4
Calculation of the average pension for
self-employed
Calculation of the average pension in the civil
servants scheme
Calculation of the average pension in the
wage-earner scheme
4
11The Maltese system of models
- Mecanical and accounting models adequate for
translating demographic projections into
budgetary developments (social security account
and global public finances account) - Special attention is paid to modelling social
expenses according to the calculation rules
(legislation), often by scheme, gender and age
number of beneficiaries (new and other), average
benefits (ceiling, minimum, indexation rules) - Baseline with no change in legislation, rules and
policy - Prospective exercise up to 2050 (scenarios with
hypotheses) - No real macroeconomic modelling, no endogenous
reaction of policy
12The Maltese system of models
- Uncertainty around the hypotheses
- Demographic (in 2050)
- fertility rate 1.75
- life expectancy at birth M 83.9 / W 88.9
- net immigration flow 17320
- Socio-economic population breakdown among
socio-economic categories (employment,
unemployment, disability, students, pensioners) - Probabilities of transition from category X to
category Y by age and gender (bottom-up
approach), based on behaviour in recent years
(including effects of reform already decided) - Except for employment and unemployment by age
and gender Nairu assumption (top-down approach)
13The Maltese system of models
Population breakdown among socio-economic
categories
14The Maltese system of models
- Uncertainty around the hypotheses
- Economic
- Structural unemployment rate in 2030 8
- Employment (average annual growth rates between
2000 and 2050) 0,1 - Labour productivity (or wage growth) (average
annual real growth rate) 1,75 - Social policy (average annual real growth rate)
- Wage ceiling 1,25
- Welfare adjustment 0,5
- Lump-sum benefits adjustment
1,0 - Budgetary policy
- revenues unchanged fiscal and parafiscal
pressure - non-age related expenditures mostly related to
the GDP - budget balance strategy see further
15Social expenditures calculationin percent of GDP
- In general
- Social expenditure number of beneficiaries x
average benefit - GDP employment x
labour productivity - with
- Average benefit social benefit (pension,
unemployment)
- number of
beneficiaries of the allocation - Labour productivity total production
___GDP___ - employment
employment - Except for the health care expenditures
- long-term care hierarchical model with
probabilities - acute care econometrical equation with
demographic drivers and non-demographic drivers
(observed profile by age and gender of per capita
health care expenditures, population prospects,
indicator of the effect of population structure
on health care expenditures, GDP per capita)
16The budgetary cost of ageing(or the evolution of
the total social expenditures in of GDP)
Large increases in pensions and health care
expenditures. Decrease in the other social
expenditures especially family allowances and
unemployment benefits.
17Financial sustainability of the public finances
- Facing the budgetary cost of ageing through a
reduction in public debt (see Law of 5 September
2001)? - It is a possible solution provided that the debt
has been sufficiently reduced by 2010 so that a
new snowball effect is avoided.
- One possible budgetary strategy
- Until 2010 the Stability Program of Belgium
foresees budgetary surpluses, going from 0.3 of
GDP in 2007 and growing up to 0.9 of GDP in
2010. - From 2011 onwards, the High Council of Finance
recommends, in his Advice of March 2007, to
have growing budgetary surpluses until 2017-2019
(2 of GDP), then to gradually return to the
equilibrium around 2035, and afterwards to
converge to a deficit about 1 of GDP in 2050. - If this budgetary strategy is applied, then the
budgetary cost of ageing is sustainable. - This implies a very strict budgetary policy, with
either a rise in the revenues, or a decrease in
the expenses, or both of them.
18Political and social sustainability
- Political sustainability a mechanism in the
calculation of the wage-earner pension (the wage
ceiling) implies that the pensions become less
and less proportional to the contributions. In
this context, will the workers still be willing
to pay contributions? - Social sustainability problem of the social
benefits level. - In absolute terms or poverty at present, the
social beneficiaries run a greater poverty risk
than the workers and the minimal benefits are
lower than the poverty threshold. - In relative terms when comparing the average
social benefits to the average workers revenues
(benefit ratio) there is a difference between
the average social benefits and the average
workers revenues, which is growing in time of the
projection (deterioration of the benefit ratio).
19IV. Conclusions about the long-term prospects
- Financial, political and social sustainability
prudence and vigilance - The Prospects are based on scenarios ?
sensibility analyses are carried out in which
some hypotheses are modified. The results either
improve (or deteriorate) - productivity more (less) high
- employment rate more (less) high
- What is the strategy of the Belgian government?
- To reduce the public debt and put money in the
Ageing Fund - To increase the employment rate (especially of
the young and the older people) - Statutory pension adaptation of the wage
ceiling, adaptation to welfare - To raise the minimum pensions and the social aid
for the elderly (Guaranteed income for the
elderly) - The Occupational Pensions Law of 13 March 2003
20Bibliography
- Federal Planning Bureau, Financial prospects for
social security 2000-2050 . Ageing and
sustainability of the public pensions, Planning
Paper 91, Federal Planning Bureau, 2002 (see
website http//www.plan.be) - High Council of Finance Study Committee for
Ageing Yearly reports april 2002, may 2003,
april 2004, may 2005, june 2006, june 2007 - (see website http//www.plan.be)
- High Council of Finance, Department Borrowing
requirements of the Public Sector, Advices and
yearly reports