ESIP-CONFERENCE May 23, 2012 Brussels Vincent Van Quickenborne

Ladies and Gentlemen, Dear members of ESIP, Thank you for inviting me to address you today. First, I would like to welcome you in Brussels, not only the capital of Belgium but also the heart of the European Union. A European Union that is putting the pressing matter of population ageing on the agenda with the European Year on Active Ageing and Solidarity Between Generations. Here in Belgium, this European Year coincides with major structural reforms in our labour market and our pension system in order to face the challenges that lie before us. These challenges ahead are quite daunting. In the coming years, the European working age population will shrink by 1 to 1.5 million Europeans every year, starting in 2014. Since 2008, and for the next 20 years, the population in Europe aged 60 and older will grow by 2 million each year. Here in Belgium, each year there will be a hundred thousand people who will make the transition from contributor to our social security as a worker to beneficiary as a pensioner. And they will be doing so for much longer than ever before. In 1960, the average life expectancy for men and women was 68; today, we live to an average age of 80. Demographists expect one out of two children born in the years 2000 to reach the age of a 100. Today, the emphasis is less on adding extra years to life than it is on adding extra life to the years already conquered. The focus has indeed shifted to healthy and active ageing. Once we retire, we still want to have the energy to look after friends and family. Or we may want to make that trip that weve always dreamed of, get a college degree, and what not. As the visionary
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General Douglas McArthur at the age of 75 famously said People grow old only by deserting their ideals. Years may wrinkle the skin, but to give up interest wrinkles the soul. I couldnt agree more. Helped by an all-generations friendly environment and a widening array of technological and medical innovations, reducing the risk of disease and disability will be key. Obviously, insurers will have a crucial role to play in designing the financial products that will enable seniors to enjoy the third age to the fullest. Social security should remain at the very core of our economic and healthcare model, but I also believe private insurances will have an increasingly important role to play in reducing demographic risks. By insuring age-related products and services that governments have deemed too expensive or insufficiently effective, but also by mobilizing capital to finance the necessary modernization of our care infrastructure. This will take some of the pressure away from public finances and allow governments to use public means more wisely and effectively by targeting the most needy. You all know that this evolution in life expectancy will have an enormous impact on public spending. In Belgium, one quarter of our Gross Domestic Product is spent on pensions and other age related social expenditures. By 2060, these expenses will have reached almost one third of our GDP. You dont need to be a mathematician to see that somehow this public spending avalanche will have to be countered. It is in this context that more and more companies will aggressively, and maybe even desperately, be scouring the labour market in search of new talent to fill the thousands of jobs vacated by the retiring baby boomers. There is no question that this development will have a profound impact on our labour market and our careers. The risks of detrimental effects for our economy are quite obvious. So the question today is whether we sit idly by or whether we take action and provide for a new path to prosperity for coming generations. The ageing of our labour force may be inevitable, but the growing deficits of our social security are not. The laws of demography may be set in stone, but those of the labour
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market are not. I choose to go by the words of Ronald Reagan, who said in his first inaugural address: I do not believe in a fate that will fall on us no matter what we do. I do believe in a fate that will fall on us if we do nothing. Thats why in Belgium, as in the rest of Europe, government, social partners and employers have to cooperate so that our children too can enjoy the prosperity and the social security we have taken for granted for too long. Let me focus on what governments can do. The first and most obvious step would be raising the retirement age. In Belgium we have implemented the first set of pension reforms in December of last year. I have put these reforms in place immediately after the start of the new coalition government because I wanted our reforms to produce effects immediately. The early retirement age will be raised with 2 years over a period of 4 years, and the length of the working career to 40 years. Secondly, governments have to return to the core principles of our European social security system. They have to reinforce the link between work and pension, the notion that benefits are based on past contributions. It is a principle that has been too often ignored in the past, supposedly as an easy way of dealing with rising unemployment. We all know now this was a fallacy, which is why we are reforming the system of equivalent periods, like unemployment, early retirement, time credit or career breaks. These periods during which people are not working, will no longer fully count for the working career length. We are also reinstating the notion that the pension people receive is based on the actual amount of years they have worked. This also means that people who have worked their entire lives should get the pensions they deserve. Thirdly, we have to move away from this notion that people past the age of 65, somehow forfeit their fundamental right to work. Until recently, Belgium had a most brilliant economist working at the University of Leuven, Paul De Grauwe, who you may know from his columns in the Financial Times. The day he reached the age of 65, Belgian law considered this civil servant unfit to continue his work and he was thus forced to resign. He currently continues his research at the London School of Economics. This kind of regulation is, frankly, an insult to the human dignity of our senior citizens.
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Ones job is often more than a mere source of income. Its also a source of pride, personal satisfaction and intellectual stimulation. Thats why we have abolished the mandatory retirement at 65 for civil servants. But the disincentives against working longer will also be abolished for the private sector. A person who has a career spanning 45 years and who is still working will continue to build up pension rights as long as he/she has not fully retired. And retirees wanting to make some extra cash will no longer be punished by seeing their pensions reduced. * * *

Ladies and gentlemen, this is but a first wave of pension reforms we are currently implementing in Belgium. I am convinced that future governments of Belgium, and indeed of all the European members states will have to continue to gradually implement further pension reforms. And although we have come a long way over the past few months in recognizing that certain institutions should no longer be considered untouchable in light of the new demographic realities on our labour market, it is my personal conviction that the fixation on a fixed retirement age - at 65, or in other countries at 66 or 67 countries - will have to be re-addressed in the future. It is time to move on from that arbitrary age limit to career length as the most important determining factor. After all, I find it unjustifiable that a blue collar worker who has started his career at 16 or 17 has the exact same retirement age as someone who obtains a university degree and starts working 8 years later. The debate on this issue will no doubt be intense, but in the end a move in the direction of career length is inevitable and socially desirable. But as I said in the beginning: government action alone will not be sufficient to address the problem of an ageing labour force. Employers will have to do their part as well. When government asks its citizens to work longer, they will naturally ask their employers for working conditions that allow them to do so in a sustainable way. Smart employers who are looking to attract and retain valuable people

will have to implement, or better yet: have already started implementing specific measures to accommodate an ageing workforce. I have never understood this tendency to view over-50 employees as somehow less valuable than their younger colleagues. Why not put the talent and experience of older employees to good use? In any case, the luxury of choosing younger employees over senior ones is something that will come at a heavy price in the future labour market. Talented young people will have countless lucrative job offerings, and the companies that do not value their older employees will be trading away their own competitiveness. What governments should ask of employers, and what is the economically sound thing for them to do anyway, is that they prepare for the ageing of the future labour market. That is why this conference is also important, so that we can come to a better understanding of how the work environment impacts the problem of workforce ageing. BMW recently launched a pilot project at one of its factories in Germany. They started a production line staffed with workers who had an age distribution that represented the average mix of employees by 2017. Then they started to implement a series of little changes to the workplace, all of them ergonomically sound adjustments that reduced the physical strain and the chances of error. All of the adjustments, such as wooden flooring, magnifying lenses, but also an ergonomically optimal job rotation, came at marginal cost and the total transformation could be achieved in a couple of hours maintenance time. But this allowed the workers to increase their production rate by 7%, on a par with regular production lines and, perhaps even more importantly, reduced absenteeism due to sick leave or other reasons from 7% to 2%, below the regular average. I have also seen encouraging signs of Belgian companies taking the lead in this matter. Recently, I visited a plant of the screen-producer Barco (in Kuurne). Barco accommodates its older workers by providing adjustable worktables, ergonomic chairs and appliances for lifting heavy material that prevent back injuries. On the work floor, I met a very proud woman who, as a low-skilled worker aged 55 was having a hard time finding a new job, until she got hired by Barco two years ago. Today, she couldnt be happier with her new job.
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All across Belgium, I have seen pioneering companies take action, showing that being over-50 doesnt mean youre to be discarded. And this isnt just happening in industrial heavy labour jobs, but also in the services sector. Companies in the services sector for instance banks - are putting the experience and talents of older employees to good use, while priding themselves on an age-friendly HR-policy. These examples show that it is possible to accommodate an ageing workforce, at limited cost, and with little or no productivity loss. It is the responsibility of all employers private and public to take up their share of the responsibility in this matter. Thats why the Belgian government has decided to demand from companies in times of restructuring, not to lay off only over-50 employees anymore, but to respect the age distribution of their entire workforce. * * Let me conclude. It is my firm belief that only through a combined effort of all stakeholders employees, employers, governments and social security organisations we will succeed in reaching the goals of active ageing: encouraging older workers to stay in employment longer, improving their participation in society and making the world in which we live more age-friendly. I hope this seventh ESIP-conference inspires all of you to move beyond slogans and to find real solutions of what I believe is one of the greatest challenges of our time. And when the work is over, please do not forget to enjoy vibrant Brussels. Because staying active is not only staying at work, it is also continuing to enjoy life. Thank you. *

Vincent Van Quickenborne Deputy Prime Minister and Minister of Pensions

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