Tripartite agreement on partial disability pensions

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In June 2001, tripartite discussions in Luxembourg led to an agreement on a partial disability pension, in addition to the existing full disability pension. It will be incumbent on employers in the first instance to offer internal redeployment to employees in receipt of the partial disability pension. In the event of non-compliance, the employer will be liable to pay a compensatory tax of 50% of the minimum wage for up to 24 months.

Under the current state disability pension scheme, insured people are deemed to be disabled when, following prolonged illness or incapacity, or gradual physical deterioration, they experience a loss of working capacity such as to be prevented from performing either the job they have most recently been carrying out, or any other occupation that matches their abilities and skills

Given that two-thirds of employees currently enter retirement through a disability pension, and that existing legislation provides only for a full disability pension, in October 1997 the government presented a bill aimed at introducing a two-tier disability pension (LU9711121F), as follows:

• a "general disability" pension for employees who were no longer able to do their job and could only perform minor tasks. Those who qualified for this pension would subsequently be able to do casual work as long as their pay did not exceed one-third of the national minimum wage (salaire social minimum); and

• an "occupational disability" pension for employees whose earnings from their most recent employment were below 50% of the norm. They would qualify for half of the "general disability" pension, which could be drawn concurrently with any occupational earnings as long as the latter were no greater than the highest pay they had received during the previous three years.

The bill was finally abandoned by the government in October 1998 following unanimous criticism from trade unions, which argued that very few employers are prepared to hire employees who have only half work capacity, given the current climate in the labour market (LU9812183N).

At a national tripartite meeting on 3 May 1999, the social partners and government decided to instruct a Ministry of Social Security working group to draw up new proposals for disability pension reform (LU9904102N). Meanwhile, on February 2001, a study commissioned by the government from the International Labour Office (ILO) on on the actuarial and financial situation of the Luxembourg basic pensions insurance scheme argued for a stricter policy on the conditions for awarding disability pensions after the age of 50 (LU0103162N). According to this study, in the light of the fact that 10% of actively employed people aged 56 in Luxembourg are in receipt of a disability pension, there is a need to reduce the disability rate by half.

At a meeting of the national Tripartite Coordination Committee (Comité de coordination tripartite) on 25 June 2001, chaired by the Ministers of Social Security and Labour, the government and social partners finally managed to reach an agreement on this delicate matter. The agreement will now have to be ratified by a law.

The terms of the agreement

The main points of the tripartite agreement on disability pensions are as follows.

Decision on awarding full disability pension

All employees applying for a full disability pension must receive a reply within four months (currently one year). After receiving opinions from competent doctors, the president and vice-president of the Union of Sickness Funds (Union des Caisses de Maladies, UCM) will take the final decision on the award of a full disability pension. The procedure will be open to both Luxembourg residents and cross-border workers.

In the event of disagreement between the UCM president and vice-president (the latter being an employees' or employers' representative), the UCM management committee will have the matter brought to its attention, and will deal with it within eight days.

Partial disability pension

If an application for a full disability pension is turned down, a partially disabled person incapable of performing their normal employment, but able to do small jobs, will receive a partial disability pension and must be offered vocational training.

In the first instance, it is for the employer to offer internal redeployment measures to employees in receipt of a partial disability pension. Employees redeployed in-house qualify for 12 months' guaranteed employment. If they are dismissed after this period has elapsed, the situation will be examined and, if appropriate, the enterprise may be liable to pay a "compensation tax" (see below). Enterprises that offer in-house redeployment qualify for tax reductions and improved financial assistance from the state.

Partially disabled employees who, by common agreement with their employer, leave a post before the 12-month period elapses to take advantage of redeployment training offered by the Employment Administration (Administration de l'Emploi, ADEM) (ie training that could lead to external redeployment) will continue to be paid their salaries until the 12-month period is over. However, the employer will have to pay a compensatory tax to fund the redeployment training in question.

If partially disabled employees find new employment within the 12-month period (external redeployment), they are entitled to their salary from the former employer for the remaining months, in addition to the new salary. The former employer will not be liable to pay the compensatory tax.

If the company does not offer a job that matches the aptitudes of an employee in receipt of a partial disability pension, a special ADEM agency will be responsible for finding a positions for the employee, using the compensation tax. This tax, equal to 50% of the minimum wage, will be paid by the employer until the employee is redeployed, for a maximum period of two years.

Employees deemed partially disabled whom the ADEM is unable to redeploy will qualify for an allowance equal to the disability pension.

The social partners believe that the agreed measures will relieve the sickness funds of substantial financial commitments. According to the Ministry of Social Security, there were 2,204 applications for disability pensions during 2000; of these, 1,153 were permanent and 305 were temporary.

Commentary

The provisions finally agreed by the social partners, which will have to be confirmed by the Chamber of Deputies, fill a major gap in the Luxembourg social security system. Employees partially incapable of continuing their normal employment, but still able to perform other tasks, are currently faced with the same dilemma: either take the "generous" disability pension, or risk being looked after by other social security measures with all the consequences and dangers that such a possibility might entail. Careful adherence to the negotiated provisions will avoid many human dramas in the future. (Marc Feyereisen)