The Organisation for Economic Co-operation and Development (OECD) has urged Belgium to make its pension system more sustainable, notably by expanding the bonus-penalty scheme and indexing retirement ages to life expectancy.

In its OECD Economic Surveys: Belgium 2026, the OECD said that although the 2026 Belgian pension reform is an important step towards sustainability, further adjustments are needed to contain long-term costs and address equity concerns.

It warned that population ageing will sharply increase pension spending, putting pressure on public finances in the long term.

In 2021, Belgian pension spending had already reached 10.7 per cent of GDP and accounted for around one-fifth of total government spending.

The comprehensive pension reform adopted in May 2026 is expected to improve the sustainability of Belgium's pension system, reducing costs by 1.3 percentage points of GDP by 2070.

A significant share of the savings is expected to result from incentives for later retirement, changes to pension calculations, aligning public and private sector schemes, and limiting social benefit increases to partial inflation indexation until 2029.

But the OECD explained that while the 2026 reform strengthens incentives to extend working lives and help contain part of the cost increase, additional measures will be needed to ensure long-term sustainability.

It argued that improving the bonus-penalty system, linking retirement ages to life expectancy, reforming benefit adjustments, and further harmonising conditions across groups would strengthen the sustainability and equity of the pension system.

For example, the report suggested that the career-length requirements attached to the bonus and penalty scheme “significantly” constrain the effectiveness of these incentives and should be reconsidered.

Minimum contribution requirements exempt 63 per cent of women and 86 per cent of men from taking early retirement from penalties.

Meanwhile, only 38 per cent of women, compared with 66 per cent of men, would qualify for bonuses for working beyond retirement age, highlighting the barriers faced by those with interrupted careers.

The OECD also recommended that strengthening the second pillar would help complement the pay-as-you-go system.

In particular, it indicated that expanding the funded component of the pension system could help sustain replacement rates in the face of pressures on public pensions, while generating positive spillovers, including deeper capital markets and improved firms’ ability to attract and retain talent.

However, it acknowledged that greater reliance on funded schemes also exposed individuals to investment and market risks, potentially leading to more uncertain pension outcomes and requiring robust risk-management frameworks.

Despite relatively high coverage, with around 60 per cent of the working-age population participating, the second pillar remains underdeveloped, accounting for only about 10 per cent of total pension spending and around 30 per cent of GDP.

In Belgium, coverage of occupational schemes is comparatively low among public sector employees, who are also most affected by the 2026 pension reform and subsequent decline in replacement rates.

Given this, the organisation argued that strengthening contribution rates is essential to develop the second pension pillar.

The government currently plans to strengthen occupational pension schemes by establishing a minimum contribution rate of 3 per cent, but the OECD said concrete implementation measures are still lacking.

The OECD pointed to several international examples, including mandatory schemes in Switzerland and linking contributions to wage growth as in the US as options for Belgium.

It also suggested that providing more comprehensive information on pension savings and expected returns could help stimulate demand among workers for the development of the second pillar.

The report also called for reforms that aim at improving fairness in the pension system. It argued that expanding occupational or private pensions may raise equity concerns, as it can reinforce inequalities in retirement income.

As a solution, it suggested recalibrating tax incentives, which it said should improve progressivity, while addressing distortions such as the tax bias towards lump-sum withdrawals and the limited cost-effectiveness of existing incentives.

In addition, the OECD said occupational pensions could be considered when determining eligibility for the minimum public pension.

Alongside this, the organisation stressed the importance of further pension reforms and measures to raise employment, particularly among older workers.

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