Pension system: the paradox of a system in surplus today but unsustainable in the long term



Taking a long-term view, UEL questions the sustainability of the general pension insurance scheme. For UEL, it is the duty of politicians and social partners to work for the maintenance of a pension system that protects and is fair not only for those currently enjoying retirement, but also for future generations.

This is also a major issue for the attractiveness of talent and the profitability of companies, given that social contributions are one of the last cost-competitive advantages of Luxembourg companies. And with 16% of gross salary (employee and employer share), pension contributions represent by far the largest part of social charges. This is also why UEL is opposed to any increase in social contributions. It should also be remembered that the pension system is highly taxed, since around 2 billion EUR in taxes (representing a third of the total financing) are devoted each year to financing the general pension insurance scheme.

It is in this perspective that UEL has carefully analysed the new technical balance sheet of the general pension insurance scheme published last April by the General Inspectorate of Social Security (IGSS). In view of the reserves of the general scheme (more than 24 billion EUR managed by the Compensation Fund), this Government and the next one might not have to take measures to comply with the law (the current rate of 24% being sufficient for the reserve to be higher than 1.5 the level of benefits during the whole next coverage period, i.e. until 2033).

However, this report has the merit of confirming the problems in the medium term (system in deficit from 2027) and in the long term (reserves exhausted in 2047), all the while “hoping” to be able to accommodate more than 100,000 new border workers over the next 20 years.

Since the problem of the sustainability of the general pension insurance system is well known and recognised (by all international organisations such as the OECD, the IMF or the European Commission), UEL’s position is not to wait until it is too late to act.

Politics should not pass on the hot potato to the next generations who will already be confronted with the problems of an ageing population with a much reduced margin of manoeuvre. By 2035, there will be more people aged 65 than under 19. And by 2050, more than one in four residents should be over 65.

Finally, it is more generally a societal issue as the extensive growth on which the general pension insurance system is based will continue to lead to many challenges such as housing, mobility and social cohesion.