Survey reveals wide range of ideas for Luxembourg pension reform

The Ministry of Social Security has published a 45-page report summarising the 2,022 contributions made to an online platform that allowed citizens to submit their ideas for Luxembourg’s pension system. Proposals range from increasing the minimum full pension to capping the maximum pension, equality between public and private sector pensions, as well as introducing wealth-related taxes to finance the pension system.

The schwätzmat.lu platform, which was available in French and German only, was opened in October last year, giving the public access until 1 December. Contributions were permitted to make suggestions up to a maximum of 500 characters.

The ministry said the contributions had “created an important basis for the further process” as it calls on expert groups to meet in the spring to discuss pension reform.

The CSV-DP coalition did not mention pension reform in its government programme, published in November 2023. But soon after taking office, Social Security Minister Martine Deprez said that without reform, the pension fund’s €22 billion portfolio will run dry by 2042.

Prior to launching the public consultation, the government held meetings with unions and employers representatives.

Minimum pension up, maximum pension down

Contributors to the online survey were not always concerned with safeguarding the future of the pension system. Several suggestions were aimed at making the system fairer.

Indeed, the majority of participants would like to see an increase in the minimum pension of €2,293.55. Proposals for this ranged from €2,500 per month to €3,000. In addition, many contributors want to retain the automatic indexation of pensions.

However, according to the report, a considerable number of contributions suggested that pensions above a threshold of two to three times the minimum wage should not benefit from inflation-related adjustments. This would finance the increase in the minimum pension, some argued.

There were also a number of proposals calling for a maximum pension cap of between €5,000 and €8,000 per month. The maximum personal pension is currently €10,618.30.

Indeed, most contributions seem to assume that the pension system needs to be supported more by cutting top rate pensions. “High civil servant pensions are viewed particularly critically, with the frequent argument that those receiving high salaries had sufficient opportunities for private provision during their active time,” the ministry’s report states.

Over 2,000 contributions were submitted to online platform schwätzmat.lu © Photo credit: Screenshot: schwätzmat.lu

Wealth tax on luxury goods and robots

In order to finance the pension system sustainably, citizens also proposed the introduction of new wealth-related taxes. They suggested higher capital income or taxes on digital companies and robots, as well as taxes on luxury goods and environmentally harmful products. That would allow the pension system to be financed without any changes to pension contributions.

Other proposals included a “more active and professional investment strategy” by the pension fund, such as diversified investment in stocks, ETFs or other financial products.

No clear consensus on retirement age

According to the ministry’s report, there was a recognisable division among contributors over the question of raising Luxembourg’s statutory retirement age from 65. Some argued that life expectancy is constantly increasing and that people could therefore work longer, while others said that older workers already have a hard time in the labour market.

People who do mentally and physically demanding work should retire earlier, some contributors suggested © Photo credit: Anouk Antony / LW-Archiv

However, a significant number of people would be in favour of making early retirement more flexible. One option would be a part-time model or a combination of retirement and continued employment.

There also seems to be a consensus on job-specific stress. People who perform mentally or physically demanding work should retire earlier, according to the suggestions received on schwätzmat.lu.

High earners should pay a ‘fair share’

On the other hand, there was a trend supporting an increase of the level of pension contributions, ranging between 0.5 and 2 percentage points. Many people are apparently prepared to accept higher contributions if the retirement age is not increased in return.

But it was the ”high earners” who were targeted as having to pay more. They should no longer be subject to the previous limit of five times the minimum wage, but should pay their ”fair share”, according to the many contributors. That would mean an end to the contribution assessment ceiling.

However, there were also suggestions that would allow for a progressive structure in which higher incomes are charged a higher contribution rate. Pensioners themselves could also contribute to the pension system by paying either symbolic contributions or even the regular contribution rate.

An end to high civil servant pensions?

There were also largely unanimous calls to level pension conditions between the public sector and private employees and even merge the pension systems into a standardised single fund for everyone. Civil servant pensions are perceived as ”too high” or even ”unfair”.

A few dissenting voices warned that some private employees may simply be envious of the conditions enjoyed by public sector employees .

The president of the CGFP civil servants’ union Romain Wolff and general secretary Steve Heiliger have spoken out against a pension reform © Photo credit: Luc Deflorenne

Tax incentives for private investments

In addition to mandatory pension contributions, the contributions also address the second and third pillars. In order to make private investments more attractive, they call for the upper tax-deductible limit of €3,200 to be raised to at least €6,000.

Overall, there was a significant demand for more state support for private pension provision and for making company pension schemes more attractive through tax incentives.

(This article was first published by Luxemburger Wort. Translation and editing by Duncan Roberts.)