Pension insurance protects insured persons against the three risks of old age, disability and survival. The financing of the general pension scheme is based on a system of burden sharing over a 10-year period (2013-2022), with the creation of a compensation reserve that must be more than 1.5 times the amount of annual benefits.

The cost of the general pension scheme is covered by the contribution rate, which has remained at 24% since 1990 and is distributed as follows 8% by the insured, 8% by the employer and 8% by the Luxembourg State. The pure pay-as-you-go contribution rate, i.e. the balance between the annual revenue and expenditure of the general pension scheme, will be 21.75% in 2020.

In 2022, the Inspectorate General of Social Security (IGSS) presented its technical balance sheet, which includes an analysis of the evolution of the general pension scheme over the period covered as well as its long-term sustainability, with forecasts up to 2070.

According to its assessment of the financial situation of the General Pension Insurance Scheme presented at the end of 2016, the IGSS estimated that the overall contribution rate of 24% would be reached around 2023, and not in 2020 as had been assessed and predicted at the end of 2011, when discussions began on the 2012 pension insurance reform, which entered into force on January 1, 2013.

However, the IGSS technical balance sheet for 2022 shows that, according to the new financial projections, the pure pay-as-you-go premium will not exceed the total contribution rate of 24% until 2027, and the reserves of the Compensation Fund, which reached an amount of more than 27 million euros in 2021, corresponding to 5.16 times the amount of annual benefits, will be exhausted in 2047. Consequently, as has been the case for decades, the financial projections once again postpone the date of the “pension wall”.

The OGBL points out that this latest pension reform of 2012 has introduced deteriorations in the general pension system, namely in the calculation rules, pension dynamization and anti-cumulation provisions, to the detriment of future pensioners as well as pensioners currently receiving a pension. At a time when the trade union movement, led by the OGBL, was putting forward proposals to maintain our pension system without damaging it, a majority of MPs decided that the younger generation would no longer be entitled to the pension level of their parents, but would have to make do with the pension level of their grandparents. A paradigm shift in social policy that was underway in many European Union countries was also underway in Luxembourg.

The new legislation also provides for the automatic adjustment of pensions to wage trends to be manipulated or even abolished once the pure pay-as-you-go rate exceeds the overall contribution rate of 24%. There are also plans to automatically eliminate the end-of-year bonus if the contribution rate exceeds 24%.

Fortunately, all the projections made over the decades have turned out to be wrong. In any case, making predictions over 50 years is a tall order, much like using the crystal ball that some people cherished in days gone by.  Today, however, we are once again confronted with the use of our beloved crystal ball in the face of projections based on uncertain assumptions to forecast the financial sustainability of the pension system up to 2070!

These projections and assumptions have an ideological purpose – to scare people – and serve to prepare the ground for a policy of social regression.

In addition, we must not forget that the technical balance has a short-term effect. It is on this basis that the level of contributions is set for the coming years, in principle until 2032. However, according to the balance sheet, the pure pay-as-you-go premium would exceed the total contribution rate in 2027. If the legislation remains unchanged, this would mean that the adjustment of pensions to wage trends would automatically change to the detriment of current and future pensioners.

For the OGBL, the time has come to right the wrongs done to future generations by the 2012 reform, to improve the situation of pensioners on small pensions and to adapt the system to new professional careers.

Back in 2012, we put forward a number of proposals in this area that would also secure the long-term future of our pay-as-you-go public pension system.

Just reread the detailed opinion of the Chamber of Salaried Employees (CSL) on the reform and the proposals made by the same CSL in 2017, at the instigation of the OGBL, following the 2016 technical review.

Instead of discussing constructive solutions, it seems easier for the opponents of our pension system not to touch the current legislation and then to use the mechanisms provided by the current law to reduce the level of current and future pensions and de facto – but without saying so – to increase the retirement age, without taking into account the new demands of the modern working world.

Beyond the question of alternative financing of the pension system, the OGBL believes that there is an urgent need to change the way professional careers are managed in many sectors, based on genuine social dialogue, to introduce genuine age management in the world of work, and to improve and adapt working conditions so that workers can work in a healthy environment without deteriorating their state of health.

All the more so because we can’t lose sight of the fact that a possible reduction in the level of pensions would, in turn, increase poverty among the elderly. Consequently, if the government does not accept an increase in social inequality and misery in a rich country, it would be forced to take measures to provide financial relief to those affected, which would have an impact on other budget items.

In any case, the OGBL will continue to fight to ensure that, at the end of their working lives, insured persons have a pension that allows them to live well, decently and with dignity, instead of having to live on a miserable pension and being forced to seek public assistance or support from their children.

The OGBL and its predecessors have fought for social progress, and we will fight against any social regression.

This article originally appeared in Aktuell magazine (#1 – 2023)

On January 31, the OGBL National Committee met again at the Maison du peuple in Esch-sur-Alzette. Coincidentally, the same day we learned from the press that the next increment (“index”) would be triggered in February. And so, naturally, the Index was invited to the first OGBL National Committee meeting of the year.

As a reminder, without the resistance and determination of the OGBL last year, the index tranche triggered in February 2023 would not have been paid to employees and pensioners until April 2024. In other words, 14 months later… and just as much loss of purchasing power for households. In fact, the so-called “tripartite agreement” of March 2022, which the OGBL strongly opposed, provided for the introduction of a minimum period of 12 months between the payment of two index brackets. This provision was unacceptable to the OGBL, which refused to sign the tripartite agreement and subsequently launched a major campaign of opposition to the measure, which ultimately led to the restoration of the normal operation of the indexation system at a new tripartite meeting in September 2022. “Without the opposition of the country’s largest union and without the opposition of OGBL activists in the streets, the September agreement would not have seen the light of day,” stressed Nora Back, president of the OGBL.

And while some voices have recently gone astray, once again attacking the system of automatic indexation of wages and pensions or questioning certain aspects of it, the OGBL National Committee made sure to dot the i’s and cross the t’s at its recent meeting. For the OGBL, the index is a red line and it will not accept any manipulation: no shifting of bands, no capping, no removal of certain items from the basket of goods used to calculate the index. In short, the indexation system must simply be maintained in its entirety, as provided for by law.

Finance Minister’s announcement is window dressing

Taxation was indeed on the original agenda of the last National Committee meeting. However, the announcement made a few days earlier by the Minister of Finance that there would finally be sufficient budgetary room to consider tax relief before the next election, presumably in the form of tax credits, came as a bit of a shock to the OGBL National Committee.

First of all, it should be noted that the existence of budgetary room for maneuver finally reinforces the OGBL’s analysis and position over the last few months, and in particular at the last tripartite meeting in September 2022. At that time, in addition to the restoration of the index, the OGBL demanded that the tax scale be adjusted in line with inflation. The government refused, arguing that public finances would not allow it.

However, the OGBL’s irritation with this announcement is mainly related to the measure envisaged by the Minister of Finance. First of all, it should be remembered that Luxembourg’s tax policy is far from fair or equitable. The simple fact that the tax scale is not automatically adjusted to inflation regularly leads to tax increases, especially for low and medium salaries. In fact, with each salary increase, for example after the payment of an indexation bracket, low and medium salaries also move up the tax scale and therefore pay more tax each time. Since the last tax reform in 2017 and until the end of the year, small and medium salaries will have experienced eight tax increases.

In other words, the tax relief provided by the Finance Minister in the form of a tax credit is really just window dressing. It is a dishonest “electoral gift”, which in reality will be financed by the excess taxes that low and medium wage earners have been unfairly paying for the last six years, because the tax scale has not been adjusted to inflation.

For the OGBL, the measure of fiscal justice that the government should take now is precisely the introduction of a mechanism for the automatic adjustment of the tax scale to inflation, in order to put a definitive end to the phenomenon of cold progression and thus provide real tax relief for low and medium wage earners.

Not forgetting, at least for the electoral programs, other measures to restore greater tax justice: additional steps at the top of the scale for high incomes, higher taxation of large fortunes and the establishment of equal tax treatment between income from work and income from capital.

Labor law: a long list of needed reforms

Last but not least, the OGBL National Committee also addressed the many reforms still needed in the area of labor law. While the issue of the organization of working time has recently received renewed attention after the Minister of Labor commissioned a study on the subject, the priorities for modernizing labor law are far more numerous.

It is becoming increasingly urgent and essential to reform the laws on social plans, job retention plans, bankruptcy, the right to training, not to mention the law on collective agreements, to name but a few. And if this list of reforms to be carried out sounds very much like a list of demands from the OGBL – which it is – it is taken, above all, from the coalition program itself. The government has committed itself to these reforms. To date, however, no legislative initiatives have been taken. The Standing Committee on Labor and Employment (Comité permanent du travail et de l’emploi – CPTE), which would be the ideal forum for social dialogue on all these necessary reforms, has not been used by the government to discuss these issues during this mandate. Regrettably.

This article originally appeared in Aktuell magazine (#1 – 2023)

We don’t need the New Year to make good resolutions, we’re working every day to make our society fairer. And 2023 had barely begun when we already knew what we’d have to defend this year, among other things… the index.

No sooner had the year begun, and no sooner had they emerged from their New Year’s drunkenness, than they got down to business. Attacks came from all sides against our index system, defended so hard until recently and so important in these times. It would be socially unfair to adjust our wages to rising prices. Companies would not have the means to maintain the value of our work. The index would have to be capped, etc. Representatives of employers and leading politicians… all felt they had to attack our index once again. It’s all about preparing the ground for 2023 and inflation, which is still high. When our National Institute of Statistics then announced that a tranche would be triggered as early as February, they complained that enough was enough, because they would already have to pay a new tranche in April – which, however, they had caused themselves by deferring it last year and up to then having it financed by the collectivity. For employers, this represents a saving of 8 months during which they did not have to pay the index.

It’s worth pointing out here that if the February indexation instalment is paid, the credit goes entirely to the OGBL’s commitment. Thanks to our tireless union effort and mobilization, the OGBL succeeded in fully restoring our indexation mechanism in September 2022. If the March 2022 agreement, signed by all except OGBL, were still in force, the February tranche would have been postponed by 14 months, to 2024. Without OGBL, there would be no tranche. We haven’t forgotten that. And we won’t forget it. This year too.

January had not yet ended, and one political announcement followed another. The Minister of Finance lifted a veil on the long-announced tax reductions for households.

At the latest since the State of the Nation address, we know that for our Prime Minister, there are “no taboos” when it comes to taxation, and that “something will still happen if there is the necessary room for maneuver”. At a time when, since the first tripartite meeting, the OGBL has been calling for the tax scale to be brought into line with inflation. Our government’s make-up of its own tax policy is phenomenal.

“The 2017 tax reform has led to greater tax justice”, the government claims – in reality, it was only then a correction of older errors, the unfair distribution of the tax burden has grown even more considerably since then.

 

We don’t need
false promises,
but strong action.

 

“This government is not raising taxes” – an indecent statement given that it has already carried out 6 real increases in individual taxes. The “cold progression” continues relentlessly to increase our net losses with each indexation tranche. Meanwhile, corporate taxes have already been cut twice by this government.

And now we’re told that “there will be tax reductions down to the middle class again this year” – in reality, these “reductions” have already been pre-funded for years by households and are now to be returned to them, in part only, as an election gift in the form of tax credits.

This is not enough for the OGBL. The cold progression and its permanent tax increases must now come to an end. The OGBL will continue to oppose the stealing of the net index value with the same force as it does for the gross index value.

It is unacceptable that politics has already been reduced to mere election promises. You’ve been elected for five years. And campaigning is not a mandate you have received from the electorate; you have to carry out a concrete policy until the very end of the mandate. A case in point is labor law, where apart from the big announcements in the coalition program, not much has happened since. There is still time to undertake the necessary reforms before the elections.

We don’t need false promises, we need strong action. As the OGBL is doing.

Nora Back, OGBL president