2024-04-10 09:08:36
Luxembourg’s reserve fund for pensions has 23.5 billion euros, but, according to the Government and experts, from 2027 benefits should begin to exceed contributions at an accelerated pace. Result: current reserves will decrease, also at a good pace.
It is therefore necessary to reform the pension system and proposals for the debate, which will begin in the autumn and last three years, are beginning to emerge. Fondation Idea, a renowned foundation for socio-economic studies in the country, launches some in its “Annual notice 2024. Luxembourg in slow motion”recently published.
How should the pension system in Luxembourg evolve? The question was posed by Fondation Idea to a panel of 120 experts in the country presenting four options. Before that, he asked whether, in fact, it is necessary to reform pensions. “73% of experts answered yes”, Jean-Baptiste Nivet, senior economist at Fondation Idea, told Contacto.
The “incentive for active workers to work longer” was the most voted hypothesis, with three quarters of experts considering the best of the four options presented to 120 experts for the future pension system, says this economist.
Does this mean that the retirement age should be raised beyond 65? “In the extreme it could be, but there are other alternatives.”
Reduce early retirement
The “reduction in early retirement” is one of the alternatives for Luxembourg residents to work longer. “Although the legal retirement age is 65, many workers in the country retire early. There is one gap between the age at which many people retire and the actual retirement age”.
Another possibility is “financial incentive”. “For example, someone with 50 years of contributions receives a higher pension than someone with 40 years of contributions”, explains Jean-Baptiste Nivet.
“Increasing the retirement age is the most extreme alternative and this is also not included in the document with proposals that Fondation Idea presented for the 2023 legislative elections, including the evolution of the pension system”, highlights this expert.
In addition to encouraging active workers to work longer, there were three other options presented to the 120 experts for the new pension system.
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Increase social contributions
They were: “progressively lowering the level of certain pensions in relation to salaries”, which was the one that raised the “most divergent opinions”; “maintain the 2012 reform and its automatic mechanisms for correcting imbalances”, with 52% of the votes and “increase social contributions” which was the least voted option.
Regarding the progressive reduction in the level of pensions in relation to salaries Jean-Baptiste Nivet explains that this measure would not affect all pensions. “It is salaries that pay pensions and we have a mechanism in which pension levels increase like salaries. In this case, this would not apply to lower pensions, but in the case of high pensions the increase would be smaller, it would increase less than the salary”.
Reduction of certain pensions
This is also Fondation Idea’s proposal for reforming the pension system and which was presented for the October legislative elections. Always protecting pensioners with lower incomes.
“For those who worked 40 years, we do not plan to change their retirement at 57”, guarantees minister
For the foundation, the best solution is to “reduce the highest pensions through a gradual reduction in the rate of proportional increase while maintaining lower pensions through a significant increase in the fixed part of the pension”, as economist Muriel Buchet, former director of Foundation Idea.
The end-of-year bonus “would also be modulated depending on the level of the pension, in order to preserve it for people with ‘low incomes’ (once again with full connection up to the minimum pension)”.
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Life expectancy increasing
With average life expectancy increasing, Muriel Buchet considers it necessary to introduce, in the pension calculation formula, “a longevity coefficient depending on the evolution of life expectancy at age 60, for the part of the new pensions that exceeds the minimum level”.
The panel of 120 experts consulted by Fondation Idea is made up of very diverse people, but all linked to the economy, with knowledge about the economic situation and the pension system, explains the senior economist at Fondation Idea.
They are politicians, from the finance committee, from all parties, or former ministers, from various ministries, administrators or managers of companies, presidents or employees of institutions, such as Statec, representatives of social partners, such as the Chamber of Salaried Workers, or of the Chamber of Commerce, people who work in the areas of economics, researchers, among others.
2024-04-10 09:08:36