The limits of pay-as-you-go pensions

In Belgium, the state pension rests on a simple pact: today's workers pay today's pensions. This system has reduced poverty among older people, but it is under pressure from ageing and only replaces part of your salary. Understanding its limits means understanding why you are better off building something alongside it, starting now.

How pay-as-you-go pensions work

In a pay-as-you-go system, the social contributions taken from salaries and self-employed income go directly to paying current pensioners. Nothing is set aside in your name: you build up entitlements, which tomorrow's workers will fund.

It is the opposite of a funded system, where everyone builds up invested capital to pay for their own retirement. In Belgium, people talk about three pillars:

What the system does well

Before its limits, its strengths, which are real:

• Solidarity: it protects people with incomplete careers, periods of illness or unemployment.
• No market risk: a stock market crash does not melt your state pension.
• A real fall in poverty: according to Belgium's Study Committee on Ageing, the poverty risk among pensioners fell from 15.6% in 2021 to 8.5% in 2024, below that of the population as a whole (10.9%).

Limit 1: fewer and fewer workers per pensioner

Pay-as-you-go works well when there are many contributors for few pensioners. But the population is ageing. According to Belgium's Federal Planning Bureau and Statbel (February 2025), in 2024 there were 28 people aged 67 and over for every 100 people aged 18 to 66. This ratio is expected to reach 37 in 2040 and 43 in 2070.

In other words, we are moving from about three to four people of working age per older person to just over two. And not everyone of working age works.

Limit 2: a modest replacement rate

The replacement rate is the ratio between your pension and your last salary. According to OECD comparisons (Pensions at a Glance 2023), quoted by the Belgian insurers' federation Assuralia, the Belgian state pension replaces about 45% of gross salary for an average earner, compared with 54% on average in Europe. For high earners, the rate drops to around 30%, because the pension is calculated on a capped salary.

For a single person with a full career, the average state pension of an employee was around €1,700 gross per month in 2024, and that of a self-employed person around €1,200, according to the same sources.

Limit 3: the rules change during your career

Because the state pension is a political promise, its rules change with budgets and governments:

• the legal retirement age rose to 66 in 2025 and will reach 67 in 2030;
• the federal government has planned a penalty for early retirement of 2 to 5% per year of early departure depending on year of birth, except for careers of at least 35 years of 156 days actually worked and 7,020 days in total. Its entry into force has been postponed to 2027;
• a new bonus of 2 to 5% per extra year worked after retirement age has been accruing since 2026, replacing the former pension bonus abolished at the end of 2025.

These measures were still being finalised at the time of our sources: check the rules that apply to you on MyPension.be.

Limit 4: a falling relative standard of living

In its July 2026 report, the Study Committee on Ageing estimates that the average gross pension, relative to average gross earnings from work, will be about 13% lower in 2070 than in 2025, partly because of the reform. The same report shows the reform cutting pension costs by 1.4 percentage points of GDP over the period. The system becomes more financially sustainable, but less generous for each pensioner.

Limit 5: you own nothing

In a pay-as-you-go system, your entitlements are not capital: you cannot pass them on, use them before the set age or choose how they are invested. It is security, not wealth. For Robert Kiyosaki, it would not even be an asset: it is future income whose amount and date you do not control.

What to do in practice

1. Check your estimate on MyPension.be: it is your real starting point.
2. Check your 2nd pillar: in 2024, 79% of workers had a supplementary pension, but the average reserve for employees was still around €18,000, according to Assuralia based on FSMA data. Self-employed? Look into the PLCI/VAPZ.
3. Use the 3rd pillar if it suits you: in 2026, Belgian pension savings give a 30% tax reduction on up to €1,050 paid in per year, or 25% on up to €1,350.
4. Build your own income: ETFs and stocks, rental property, a business. That is what this whole journey is about.
5. Run the numbers: enter your estimated pension in the ‘income that continues without working’ box of the financial freedom calculator. You will see how much capital you are missing.

Where to find these services

• MyPension.bePersonal estimate of your state and supplementary pensions
• Federal Pension ServiceThe body that calculates and pays Belgian state pensions
• Wikifin (FSMA)To understand pension savings and the three pillars (French and Dutch)

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This article is educational and is not personal investment, tax or legal advice. Figures change: check them with the sources cited or a licensed professional before deciding. Read the full disclaimer.