Substantial increases in private sector pensions agreed

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In July 2001, at a wide-ranging round-table meeting on the issue of private sector pensions in Luxembourg, the political parties and trade unions agreed, against the employers' wishes, on substantial increases in private sector pensions. These increases were accompanied by family policy measures supporting women who have brought up children.

In October 1998, seven leading private sector trade unions organised a joint platform and submitted a set of demands on a restructuring of the pensions system to the government (LU9811175F). The unions argued that convergence between the public sector and private sector pension schemes should not be achieved by reducing the value of the former, but by uprating the latter. They thus sought structural improvements in the general private sector pension insurance scheme. The issue has since become an increasingly burning issue.

On 15 February 2001, a study commissioned by the government from the International Labour Office (ILO) on the actuarial and financial situation of Luxembourg's basic retirement insurance scheme described a healthy financial situation, but recommended that the government should increase the current contribution rate and reduce the level of expenditure, while at the same time giving consideration to raising the qualification age for early retirement (LU0103162N).

After this study was published, the Prime Minister announced a 'wide-ranging round table on the problem of private sector pensions' starting in March 2001, that would bring together all economic actors in Luxembourg.

Invitations to the round table were sent to the five main political parties, to the trade unions - the Luxembourg Confederation of Independent Trade Unions (Onofhängege Gewerkschafts-Bond Lëtzebuerg, OGB-L), the Luxembourg Confederation of Christian Trade Unions (Lëtzebuerger Chrëschtleche Gewerkschafts-Bond, LCGB) and the General Public Sector Confederation (Confédération Générale de la Fonction Publique, CGFP) - and to the employers grouped in the Union of Luxembourg Enterprises (Union des entreprises luxembourgeoises, UEL).

On 16 July 2001, after nine meetings spread over the previous four months, a consensus was reached between the five political parties and the trade unions. The employers voted against.

Terms of the agreement

The agreement is based on a proposal to distribute an additional LUF 5.2 billion (129 million EUR) funded out of the reserves of the various pension schemes.

The key point of the complex agreement is that, from 1 January 2002, it will trigger:

• a linear increase in pensions of 3.9%;

• an LUF 500 end-of-year supplement given to each pensioner for every year of employment;

• a 4.8% increase in pensions below LUF 46,845 (1.161 EUR) a month; and

• a review, favouring recipients, of survivors pensions and of provisions preventing the accumulation of various types of income.

Since 1988, a woman in employment has been able to take leave from her job for two years after the birth of a child (four years in the case of a third child), and the state pays her pension insurance contributions throughout this period. Under the July agreement, the state budget will also fund such 'baby years' in respect of births prior to 1 January 1988.

Lastly, the state will pay a monthly allowance of LUF 3000 (74 EUR) per child to women who are in receipt of a pension, but have not qualified for 'baby years.'

The latter two measures have been described as "family policy measures".

Positive reaction of trade unions

The OGB-L and LCGB trade unions believe that they are the "main winners" of the agreement "after using a shared language, and adopting a shared attitude, to press forward their demands and proposals". The unions conceded that the final accord was a "politico-trade union mixture", and was the outcome of a compromise between the various actors who had taken part in the debate.

The unions are pleased that the family policy measures have been incorporated in the package negotiated with the government.

Lastly, the unions say that not all aspects - such as retirement age - have been dealt with, and they also criticise the employers for what is seen as a dismissive attitude at a time when the other parties were ready to sign the agreement.

Negative reaction of employers

The employers opposed the agreement, and claimed that the government had abandoned its cautious, expedient policy. UEL argues that the reform of the system of funding pensions, as it has been adopted, will be to the detriment of future generations, and that the agreement will not guarantee long-term funding of the system, and will damage the principle of inter-generational solidarity. It also states that the measures adopted at the end of the round-table meeting contravene both the government's statement of policy when it came to power and the conclusions of the report presented by the ILO.

UEL quotes from the government's policy statement of 12 August 1999 (LU9909111N), which stated that pension fund reserves are "the outcome of a cautious, expedient policy that should serve to mitigate the effects of an economic downturn. There can therefore be no question of squandering reserves intended to guarantee the future.

For UEL: 'The LUF 5.2 billion of additional annual expenditure will certainly have an impact on a pension scheme that is currently functioning within a favourable scenario, because the number of scheme members is high enough to cover current expenses. However, the situation could change around 2020, when disbursements will exceed revenue. It was this that caused the ILO to recommend that the government should boost reserves by five times the amount of annual expenditure in order to cater for a more unfavourable period.'

UEL also pointed out that it had proposed during the round table that there should be an analysis of revenue, the only unknown variable, every three or four years, and that the rate of growth in the economy should be used as a reference. The employers' association was afraid that if the growth rate fell below 4%, the basis of calculations used for the ILO projections, it would be necessary to reduce benefits to make sure that funds did not run dry. UEL believes that the participants at the round table had wrongly refused to endorse this proposal to use growth in the economy as a warning signal. According to UEL, it is not clear that the Luxembourg economy will attain annual growth of 4%, particularly as economic forecasts are now suggesting a downswing both in the 'euro-zone' and worldwide.

UEL leaders regret that the government's aims differ fundamentally from the intention it expressed in its earlier statement advocating an expedient approach with regard to reserves.

The government's reaction

The government has made it clear that, while regretting the position taken by the employers, there have been neither winners nor losers. It insisted that all measures decided on (with the exception of the decision to change the rate of minimum pensions) were reversible if annual growth of 4% in GDP was not achieved.

Commentary

It is worth recalling the previous government's comments in 1998 when there was talk of cutting civil servants' pensions: then, the focus was on gloomy prognostications with a view to preventing the civil servants' pension scheme becoming impossible to fund (LU9808173F).At the same time, it was stated that private sector pensions would not undergo substantial alterations. (Marc Feyereisen)