ABBL

On 20 January 2012, the Luxembourg Council of Ministers adopted the draft law on the reform of the Luxembourg pension system.

The text as adopted, however, does not appear to meet the requirements of a sustainable reform and at best will only serve as a basis for an awareness raising campaign that does not at all call into question the principles of the existing pension system, such as:

• The pure pay-as-you-go pension scheme with financial reserves based on intergenerational solidarity
• Financing on the basis of a joint three pillar system (insured, employers and State)
• Legal retirement age still at age 65
• Early retirement at age 57 after 40 years of compulsory insurance
• Early retirement at age 60 with 40 years of compulsory insurance and supplementary periods
• Continuation of the pre-retirement system
• Maintenance of high minimum pensions

The reform in no way deals with the following problems:

• Cross-border indebtedness
• The overly high replacement rate
• The untenable financial burden for the current and future working population
• The need to increase the responsibilisation of the non-working population by abolishing social benefits that are too high

The ABBL strongly advocates a drastic reform in order to make our pensions sustainable, since the current system is not sustainable in the long term.

As a reminder, the general pension scheme in Luxembourg is based on a compulsory insurance system.

It is a pay-as-you-go system with a mandatory establishment of reserves financed via contributions. The reserves must cover at least 1.5 times the annual expenditures.

The Luxembourg system thus constitutes an intergenerational contract: with their contributions the working population finances the benefits of pensioners. The average replacement rate is 85% and thus exceeds the rate in other countries by a long margin. It should also be highlighted that Luxembourg’s prosperity has been largely created by a non-Luxembourg workforce, meaning that the country will sooner or later be forced to settle its debts once these people go into retirement.

Faced with the numerous constraints of a system that requires continuous staggering growth of employment and faced with demographic realities, a deficit of the Luxembourg pension system is to be expected in the short term: without a fundamental reform, the ratio between contributions and benefits will no longer allow the maintenance of the current pension benefits.

Related files: 

Projet de loi portant réforme de l’assurance pension (2012)

Réforme du système de pension - Présentation IGSS (2012)

Une retraite pour tous - UEL (2011)