Analysis-Europe's costly military pensions complicate defence build-up

By Leigh Thomas

PARIS (Reuters) - European nations want to spend big on artillery, missiles and drones, but costly military pension commitments risk constraining those ambitious plans, according to previously unreported NATO-member defence budget data compiled by Reuters.

NATO's European members are rushing to ramp up spending on military hardware as a bellicose Russia threatens their eastern flank and U.S. President Donald Trump's long-term commitment to European security appears suddenly in doubt.

But for over a dozen NATO members, whose military spending Reuters analysed, pensions make up a large - and largely overlooked - chunk of their defence budgets.

While those are funds that could potentially be redirected toward firepower, experts warn that any cuts to generous retirement benefits could make it harder to recruit personnel.

"A non-insignificant portion of what is accepted as defence spending doesn't deliver any capabilities, nor more troops, nor anything, but is earmarked for pensions," said Camille Grand, a former NATO assistant secretary general for defence investment.

European nations' historical failure to meet a target to spend the equivalent of 2% of economic output on their militaries to shore up NATO's collective defences has angered Trump, who now wants to hike the threshold to 5%.

And while 23 of NATO's 32 members now meet the 2% target - up from just six in 2021 - rules allowing governments to include military pension spending distort that picture.

NATO does not publish the individual military pension expenditures of its members, 30 of which are European.

Reuters, however, compiled data that 13 NATO members - the United States, Canada and 11 European allies - reported either in their national budgets or, for some, to the United Nations.

In Belgium, Bulgaria and Italy, nearly 20% of defence budgets are used to pay soldiers' retirements, while France is not far behind at nearly 16%.

Germany's pension burden is comparatively lower at 11.5% of defence spending, shining a kinder light on a country whose complex history has traditionally made it unwilling to countenance greater militarisation but which is now ramping up its capabilities.

Germany's defence ministry did not respond to a request for comment.

The average pension spend among the 13 nations analysed by Reuters was 12% of defence budgets.

Eight of the 11 European nations met the 2% of GDP spending target last year. Excluding pensions, however, that number falls to just five.

FIREPOWER OR PENSIONS

Although NATO spending has been rising, some members are still lagging behind.

Belgium, Italy and Spain have notably committed to meet the 2% target this year, in time for a June 24-25 NATO summit in The Hague where Trump wants a deal on a 5% target.

NATO chief Mark Rutte has proposed members boost defence spending to 3.5% of GDP and commit a further 1.5% to broader security-related spending to meet Trump's demand, Reuters reported last week.

As countries debate spending hikes, however, they need to ensure the goal is actually increasing firepower, said Armin Steinbach with the Brussels-based think tank Bruegel.

"If much of the money goes into salaries or pensions, this is not productive investment," he said.

That won't be easy.

Italy's economy minister Giancarlo Giorgetti said last month he was "acutely aware" a spending hike was needed. But he also said the government, which currently excludes pensions from reported military spending, would change its accounting in part to reflect those costs as it seeks to meet NATO's expectations.

Italy reported to the United Nations that it spent 5.2 billion euros ($5.9 billion) on military pensions in 2023, or 18% of total military expenditure, more than it spent on aircraft and ships.

France, whose hopes for a defence build-up are limited by a huge budget deficit, only just meets the 2% target thanks to pension spending. Without that outlay, NATO's fourth-biggest military would only be at 1.7% this year.

France's 2025 defence budget includes 9.5 billion euros on pensions, far greater than the 5.7 billion euros it spends on maintaining its air and submarine-borne nuclear arsenal.

SACRED COWS

In contrast to its European allies' often bloated pension burdens, the United States, NATO's biggest military, spends the equivalent of 8.5% of its defence budget on retirement benefits.

And Washington shifts much of that cost to other parts of the government, limiting the direct impact on defence spending.

Of the $72 billion the U.S. military retirement fund paid out in benefits last year, only $24 billion came directly from the Department of Defense's budget. The rest came from investment income and a subsidy from the U.S. Treasury, according to the fund's audit report.

The White House did not respond to a request for comment.

Some European countries - Belgium, for example - appear ready to confront the pension problem directly.

Brussels is looking to gradually raise the military retirement age to 67. Belgian soldiers can currently retire with full benefits at just 56.

The Belgian defence ministry did not respond to a request for comment.

Retirement conditions and benefits vary from country to country. But earlier retirement than for civilian jobs is one of the perks of service in many militaries, and reforms seen as threatening what many consider sacred cows could prove tricky.

Emmanuel Jacob, the president of Euromil, an umbrella organisation that defends European soldiers' rights, said there was a limit to how far countries can squeeze military benefits.

"If you don't invest in men and women in the armed forces, then at the end you will have a big parking lot loaded with nice tanks, but nobody to work them," he said.

($1 = 0.8804 euros)

(Reporting by Leigh Thomas; Additional reporting by Giuseppe Fonte in Rome, Editing by Gabriel Stargardter and Joe Bavier)