For pensions, wait and see

For pensions, wait and see
For pensions, wait and see

The increase in pension expenditure is contained and controllable for at least 30 years. The Chamber of Employees, in the meantime, observes completely divergent scenarios.

Every opportunity is good for the Chamber of Employees to allay the most pessimistic fears surrounding the future of the pension system. This time, the publication of the Ageing Report allows him, once again, to plead in favor of one-off adjustments, as opposed to a general reform of the pension system.

Long-term projections are not reliable, this is the lesson that the Chamber of Employees draws from observing the results of this report. Published every three years, it presents new long-term developments in expenditure linked to aging, based on the most recent demographic projections provided by Eurostat.

In this scenario, pension expenditure (general and special schemes) should increase from 9.2% of GDP currently to 17.5% of GDP until 2070, an increase of 90% over a period of almost 50 years. . Fortunately, there are other scenarios, developed by Statec, which integrate macroeconomic projections in addition to demographic estimates, which better fit the Luxembourg reality.

“Indeed, in the past, it turned out that Luxembourg’s demographic growth was particularly marked by Luxembourg’s greater economic attractiveness than that of other countries,” notes the Chamber of Employees. She regrets that these macroeconomic effects on migration are not taken into account in Eurostat’s demographic projections, thus making them “inadequate for Luxembourg”.

With the Statec demographic scenario, the increase in pension expenditure should be limited to less than 40% over the same period, i.e. a change that is half as strong.

“Such a divergence of results depending on the scenario chosen underlines the extent to which long-term projections are sensitive to assumptions and thus, the extent to which the uncertainty is high regarding the long-term financial evolution of the system,” concludes the CSL. Even when we only compare the short-term evolution between 2022 and 2030, a very strong divergence of results can be observed, depending on their hypothesis of migration and a ceiling on the share of cross-border workers on the labor market.

“It is becoming obvious that long-term projections are too uncertain to motivate any deterioration of the pension system,” warns the CSL, accustomed to observing “that with each new update of the exercise, it turns out that the projections previous studies were too pessimistic due to overly pessimistic assumptions.

Positive effect of the reform

The General Inspectorate of Social Security (IGSS), which has recently included alternative macroeconomic and demographic scenarios from Statec in its projections, affirms that the mechanisms introduced during the 2012 reform will have a positive effect on the financial situation of the general system. long-term. “Depending on the readjustment moderator applied, the impact of the reform results in a reduction in regime expenditure between 3.7 and 5.5 percentage points of GDP in 2070,” indicated the IGSS in its technical report. 2022, latest. The increase in expenditure linked to the payment of pensions (including special schemes) is limited to 0.5% of GDP by 2040 and 0.8% of GDP by 2050.

The CSL calculates that an increase in the contribution rate of one point per party (from 8% to 9%) would generate revenue of 1.1% of GDP and would be sufficient to keep pension systems in balance (general and special) until at least mid-2050, “without even touching the gigantic reserve of more than 24 billion euros of the general regime”, rejoices the CSL.

For employers, an increase in contributions would be the least equitable measure and the most damaging to Luxembourg’s competitiveness. He much prefers the principle of skimming the highest pensions in a progressive manner. Other measures aimed, for example, at encouraging investments in private pension funds, are part of the employers’ proposals which encourage the government to carry out pension reform.

The CSL prefers to wait and see.

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