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)