The government has not yet tabled any pension reform bills. The Prime Minister, Luc Frieden (CSV), had merely sketched out the outlines during his State of the Nation address on 13 May. At the same time, the Minister for Social Security, Martine Deprez, was given the task. The results of this citizen consultation were revealed at the beginning of July.

In the original schedule, the minister should have tabled a bill straight away. It was delayed by union mobilisation which culminated on 28 June and led to a round of consultations with the social partners and the "amendment" of the government bill.

Point of departure

What were these broad outlines?

1. Keep the public system (also known as the first pillar) at the centre.

2. Maintain the current system for people already retired or close to retirement.

3. Continue to take into account years of study and baby years.

4. The central provision was to keep the statutory retirement age at 65 while bringing the actual retirement age closer to it. To achieve this, there was to be a gradual increase in the number of contributory years needed to qualify for early retirement: "The career required to qualify for a pension will be gradually extended by three months a year over several years", said the Prime Minister. He also announced the introduction of phased retirement, i.e. a period during which a person can gradually reduce their work while already receiving part of their pension.

5. On the expenditure side, the Prime Minister pledged to finance the system over the next 15 years by three means: a budgetary contribution from the proceeds of an existing tax on consumption - "for example, it would be possible to allocate half the proceeds of the CO2 tax to social measures", he told MEPs -, maintaining the reserve and maintaining the measures provided for in the 2012 reform in the event that expenditure exceeds revenue. This means halving the adjustment of pensions to real wage earners and abolishing the end-of-year allowance. Two other adjustments were mooted: social assistance for people at risk of falling into precarious employment at the time of retirement and tax incentives to make individual retirement savings (the third pillar) more attractive.

Time takes precedence over age

As presented, the draft reform aroused opposition from the trade unions and triggered the round of social consultation which ended on 3 September with an update of the draft reform. How has the front line evolved in relation to the positions of the social partners as expressed in the report on pensions delivered by the Economic and Social Council in July 2024?

The statutory retirement age remains 65. This was one of the few points of consensus between the employers' group and the trade union group as formalised in the opinion of the Economic and Social Council published on 24 July 2024. The two groups also agreed to increase the effective retirement age. The trade unions specified that this would be done "voluntarily" and were in favour of "developing gradual retirement". The unions were opposed to the government's proposal to gradually increase the number of years of contributions required to qualify for early retirement, which, according to their calculations, would eventually increase the length of contributions required to qualify for early retirement by 5 years. On this point, the Frieden government has taken a step towards them by stopping a gradual increase of 8 months over 5 years. By proposing the introduction of phased retirement, modelled on what exists in the civil service, the government is meeting a joint demand from the unions and employers.

The social aspects of the reinforced scheme

It was on the social aspects and contributions that the differences were most notable between employees and employers.

The first sticking point: safeguarding the social nature of the scheme and support for small pensions. The government is planning social assistance for people receiving an old-age or survivor's pension and living in low-income domestic communities. It has not revealed how this will be allocated or the amount, which could be a potential source of friction with the unions, who for their part were demanding a "significant increase in the minimum pension".

On the other hand, the unions will appreciate the fact that the end-of-year allowance has been maintained "for social protection reasons, as an exceptional derogation from the 2012 reform". On the downside, they did not obtain its perpetuation irrespective of changes in expenditure and revenue.

Employers, who were calling for it to be abolished, were not successful either. Just as they did not win on the point of the readjustment moderator - the mechanism that governs how pensions are adjusted in line with changes in real wages. A parity adjustment normally.

Hike in social security contributions: employers' failure

Another failure - a major one - for employers: the increase in social security contributions, a red line that has been reaffirmed many times in the name of preserving Luxembourg's attractiveness. But in the face of union demands to increase the rate of contributions from 24% to 27%, the government has split the difference. At the same time, it rejected the unions' demand to boost revenue for the general scheme by removing the ceiling on contributions and raising taxes.

On the issue of additional periods--years of study and baby years--the government is keeping them, as the trade union group wanted. It provides for the so-called additional periods relating to years of study to be included in a flexible manner during the insured person's entire insurance career. This was a setback for the UEL, which wanted them to be overhauled or even abolished in application of the "benefit if and only if you contribute" principle.

The employers, on the other hand, won their case on the promotion of the third pillar (private pension provision). The government is proposing to increase the annual tax deduction for payments made under this pillar from €3,200 to €4,500. For the employee group, as private pillars are not considered viable alternatives to the public system but a simple form of savings, this measure was not necessary.

By proposing to re-examine the pension system in 2030, Luc Frieden is going down the road taken by employees, who believe that long-term projections are unreliable and that there is no point in carrying out reforms for too long. This was the demand of the employers, who wanted a reform that would balance the system over at least 15 years.

Trade unions and employers will have other opportunities to air their differences. There is nothing in the government's plan on spending. However, this aspect will also have to be addressed, as the 1.5% increase in contributions will only ensure a balance for around four years according to Martine Deprez's calculations.

This article was originally published in French.