While he leaves it to the social security minster (CSV)--who has been conducting a consultation on the current system since October--to present the detailed reform that the government will introduce to reform pensions, (CSV) has marked out the ground.
The first announcement: the reform will not apply to people already retired or close to retirement. No details are given on this proximity. There will also be no change to the way in which years of study and baby years are taken into account.
Similarly, the first pillar will remain at the heart of the system. No privatisation of the system is in sight, and neither is the introduction of a variable capitalisation component. However, Frieden has indicated that private third-pillar pensions will be made more attractive. The second and third pillars of retirement--i.e., pension plans taken out by companies and those taken out by individuals--remain marginal in Luxembourg, much to the chagrin of insurers, who have been arguing for years for more generous tax incentives than those that apply today. They have been partially heard.
Progressive increase in the length of contributions
Where the game will change is in the length of contributions. “It is not uncommon today for the length of retirement to be almost equivalent to the number of years of contributions. It’s clear that this situation is no longer viable. Luxembourg also has the lowest real retirement age of all EU and OECD countries, at 60,” pointed out the prime minister, who indicated that the number of contributory years would gradually increase by three months a year over several years. “Thanks to this change, we would bring the effective retirement age closer to the statutory age of 65,” he explained, insisting that the statutory age of retirement would remain at 65.
To support the transition between work and retirement, a phased retirement scheme will be introduced. Over a period to be specified, people will be able to gradually reduce their work whilst already receiving part of their pension. This had been one of the few points on which MPs of all parties had agreed: the lowest common denominator for initiating reform with a minimum of political consensus.
Level of contributions will not change
Whilst the contribution period will gradually increase, the contributions themselves will not change. This was one of the red lines for the employers, just as raising the retirement age was for the unions. To finance the system for the next 15 years, the government is considering a budget contribution from the proceeds of an existing consumption tax. “For example, it would be conceivable to allocate half of the revenue from the CO2 tax for social measures.”
In the event that expenditure exceeds revenue, the rules set out in the 2012 reform--principally, the disappearance of the 13th month and the moderation of pension adjustments--will be fully applicable. One problem raised by the social partners is the increased risk for pensioners receiving the minimum pension, which is barely above the poverty line. “For people at risk of falling into insecurity when they retire, we are going to introduce targeted social assistance,” says the prime minister. It is up to Deprez to specify the contours of this reform and set the timetable.
This article was originally published in .