New bill deals with pensions in the private sector

Download article in original language : LU9711121FFR.DOC

A new bill to reform private sector pensions in Luxembourg, presented in August 1997, does not seek structural reform; instead it confines itself to specific changes and to the introduction of a two-tier system of disability pension.

The Luxembourg pensions system is divided into two parts, the general basic "common law" scheme which applies to the private sector, and the more favourable public sector scheme.

The basic scheme

Eligibility criteria for the basic pensions scheme are as follows:

  1. An old-age pension payable at 65, providing the employee has made at least 120 months' contributions to the compulsory insurance scheme.
  2. An early retirement pension at 60 providing the employee has made at least 480 months' contributions to the insurance scheme in "effective" and "assimilated" periods
  3. An early retirement pension at 57 providing the employee has made at least 480 months' contributions to the compulsory pension insurance scheme.

Without going into the often complicated factors that affect the calculation of pensions, the minimum personal pension is currently LUF 39,727 gross per month, while the maximum is LUF 183,920, assuming a contributions record that has lasted for the whole of the employee's working life.

Every two years, the government determines whether or not it should carry out a legislative review of the value of pensions, which are also automatically linked to variations in the cost of living.

This private sector pension insurance scheme is funded by an overall contribution of 24% of total pay: the employee, the employer and the state each contribute one third (ie 8%).

The positions of the social partners

Private sector trade unions are calling for structural improvements to the general scheme, and are aiming for provisions equivalent to the public sector scheme. They have long shown some interest in a "convergence of systems", especially as the public sector scheme calculates pensions on the basis of final salary (LU9706111F). This convergence has always been understood to mean a standstill in the civil servants' scheme and a gradual improvement to the private sector plan; the overall aim is a joint fund and a single, similar scheme.

Although it is true to say that the circumstances of retired people have long been better in Luxembourg than in many other western countries, a collective view appears to be developing that the state's capacity for funding will sooner or later be exhausted. The Government's firm intention to provide civil servants of the future with a pension scheme comparable to that provided in the private sector is bound to please all those who have argued for a single scheme. The downside is that it will be possible to achieve this long-coveted convergence only by levelling downwards.

There is a clearer understanding of another problem linked to the social security system. In its opinion on the draft 1998 Budget, the Private Sector White-collar Employees' Chamber (Chambre des employés privés) denounced what it sees as legislation that allows people to retire on a disability pension and encourages an attitude in favour of a lower retirement age. Over the years, these factors have fostered what might be called a "retirement mentality", and as a result almost 60% of the active population aged 55-60 have already left the labour market. The Craft Workers' Federation (Fédération des Artisans) also criticises the fact that it is too easy to qualify for a disability pension, and has insisted that the whole issue of disability pensions should be regulated as soon as possible.

The Government's bill

The Government presented a bill to reform private sector pensions in August 1997, as part of a pensions reform package (LU9711126F). In its introduction, the proposal stresses that it will not be able to address the abovementioned structural demands put forward by the trade unions, and that it is restricting itself to improvements to cover provided for women in a number of specific situations, and to the introduction of a two-tier system of disability pensions.

The Government acknowledges that two-thirds of employees take retirement on the basis of the disability pension, and is aware that current legislation provides for a single full-disability scheme. Accordingly, it wishes to introduce a two-tier disability pension scheme, which will consist of:

  • a "general disability" pension for employees who are no longer able to do their job and can only perform minor tasks. Those who qualify for this pension will be subsequently able to do casual work as long as their pay does not exceed one-third of the minimum wage (salaire social minimum- LU9702103N); and
  • an "occupational disability" pension for employees whose earnings from their most recent employment is below 50% of the norm. They qualify for half of the "general disability" pension, which may be drawn concurrently with any occupational earnings as long as the latter is no greater than the highest pay they have received during the previous three years.

People with a disability may also qualify for vocational retraining for a maximum of 18 months, during which time they may draw their disability pension.


One of the main thrusts of Luxembourg policy should be to find a solution to the pensions issue during 1998. Such a solution would involve three-pronged legislation dealing with private sector pensions, public sector pensions and complementary pensions. Adopting such measures would address an issue of which the people of this country are only hazily aware. We should not expect too much of Luxembourg on this count. (Marc Feyereisen, ITM)

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