Harmonisation of schemes

The progressive and sector-based development of pension insurance, which has given rise to a number of specific features, has raised the problem of the national coordination of pension schemes.

The purpose of the Law of 16 December 1963 is to resolve the problems posed by a person's successive or alternative enrolment in various pension schemes. The need to coordinate pension schemes arises from the fact that each pension institution makes the granting of benefits conditional on the completion of an enrolment period of a certain duration and on the maintenance of rights until the termination of the event giving rise to the pension. When moving from one scheme to another, it is therefore possible that these conditions are not met, and that the person concerned is deprived of all pension rights or loses the benefit of part of their enrolment career. Under the 1963 law, periods of enrolment with all pension schemes are added together as if they had been with the same institution. The conditions for qualifying and maintaining rights are therefore assessed by each organisation in accordance with its own legislation on the basis of the insured person's entire career.

The single law of 13 May 1964 aimed to improve pension schemes and introduced the principle of pension adjustment in the salaried employees' scheme. This law is one of the most important in terms of contributory pension insurance. It established certain principles that are still applicable today. The composition and calculation of pensions were standardised across all schemes and the funding of the various schemes was aligned. Finally, the single law introduced the principle of adjusting pensions to the rise in the standard of living in the salaried employees' scheme. This principle was gradually extended to artisans (Act of 5 August 1967), traders and industrialists (Act of 4 February 1970) and farmers (Act of 14 February 1974).

Substantial improvements were achieved by the law of 25 October 1968, which introduced special increases in the event of invalidity or early death in contributory pension schemes. Insufficient pensions due to invalidity or premature death are increased by adding notional insurance periods to actual insurance periods until the insured person reaches the reference age of 55. The law also relaxes the conditions for granting invalidity and survival pensions.

Similarly, the law of 28 July 1969 made a further improvement to the pension scheme by introducing a system for the retroactive purchase of insurance periods under pension schemes for employees and self-employed persons. This measure takes account of the fact that, when a pension scheme was set up, people who had already reached an advanced age did not have the opportunity to complete the qualification period required by law or were only receiving a pension that was lower than that which would have resulted from a normal insurance record. The 1969 law enshrined the principle of buy-back in all contributory pension schemes. Until then, only private employees could benefit from this option.

The Acts of 3 September 1972 and 14 May 1974 introduced specific changes and harmonisation measures to the contributory pension schemes. The Act of 3 September 1972 introduced an additional qualification period, namely 15 years' residence, for the award of the full basic portion payable by the State and municipalities. It standardised the qualification period for granting both old-age pensions and invalidity pensions within and between the various contributory pension schemes. Lastly, it abolished the prorating of the basic portion in the event of internal migration and created a new method for sharing the costs between bodies for fixed portions other than the basic portion. The law of 17 May 1974 made substantial improvements to the pension insurance scheme, including raising the minimum pension and adjusting the special increases payable in the event of early invalidity.

In addition, the law has introduced measures to ensure that insured persons with disabilities receive better continuity of care from social security bodies.

The adjustment has led to serious financial disparities between the various funds. On the one hand, the “Assurance contre la vieillesse et l'invalidité et la caisse de pension des artisans” (Old-Age and Invalidity Insurance Institution and the Artisan's Pension Fund) are running a substantial deficit in funding the adjustment. On the other hand, the “Caisse de pension des employés privés” (Private Employees' Pension Fund) and the “Caisse de pension des commerçants et industriels” (Tradespeople's and Industrialists' Pension Fund) are showing a surplus for the same item. In view of these financial problems, the law of 27 December 1975 introduced a system of compensation between contributory pension schemes for the costs of adjusting pensions to salary levels. The law sought to ensure that the costs of adjustment were taken into account more equitably within the framework of migration insurance and created a community of risk to finance the adjustment.

Also due to financial problems, caused by an alarming demographic situation due to the high proportion of elderly people and the decline in the number of insured persons in work, the law of 23 December 1976 provided for the merger of the “Caisse de pension des artisans” (Craftsmen's Pension Fund) and the “Caisse de pension des commerçants et industriels” (Tradespeople's and Industrialists' Pension Fund) into a single fund.

The merger of the two funds is also a step towards the general reform of pension schemes. In the same vein, the Act of 29 March 1979 brought about a complete harmonisation of the agricultural pension scheme with the other contributory pension schemes.

The Act of 31 July 1980 made considerable improvements to the pension scheme. It introduced measures aimed at revaluing pensions below the minimum levels set out in contributory pension schemes for certain categories of pension holders who can rely on periods of professional activity not subject to compulsory insurance. This mainly concerns the entry generations of insured persons who, at the time their pension scheme was set up or at the time of their compulsory enrolment, had already reached a certain age, so they had not been able to complete the qualification periods required to obtain the minimum pensions.

The financial problems encountered by some pension funds stem from the fact that the funding arrangements date back to the early 1960s and have not been fundamentally revised, even though economic conditions and the demographic structure have undergone profound changes since then. The law of 23 May 1984 therefore undertook a complete overhaul of the funding arrangements for contributory pension insurance in order to adapt them as far as possible to current and future economic and demographic constraints. It introduced a generalised pooling of risk. Insofar as the law maintained the administrative structure of the four pension funds, this pooling of risk was achieved through compensation transfers between the four funds. In addition, a single financing system covered all the costs of the insurance scheme. The mixed nature of the funding was retained, i.e. the scheme's costs were covered by contributions deducted from the professional income of insured persons on the one hand, and by a direct contribution from the public authorities on the other. However, instead of being based on benefits, this contribution was now based on resources.

The process of harmonising and standardising contributory pension schemes was completed with the Act of 27 July 1987. The law created a single contributory pension insurance scheme for old age, invalidity and survival by merging the four contributory pension schemes. The management autonomy of the pension funds was maintained, as they remained responsible for the socio-professional groups they covered. At the same time, improvements were made to social protection in specific, well-defined situations, notably through the introduction of the "baby year". The long-term objective is to curb the increase in the cost of the pension protection system, taking into account demographic and economic trends. The government has therefore stated its intention to ensure that the development of the contributory and statutory schemes continues, so that the divide between the two gradually dissipates and disappears.

With the introduction of a single contributory pension insurance scheme under the 1987 Act, the provisions of the 1963 Act relating to the co-ordination of pension schemes were largely rendered obsolete. The Law of 22 December 1989 provided a new, precise and clear definition of the rights and duties incumbent on each pension fund in the event of an insured person being subject to several schemes.

Finally, with a view to making structural changes to pensions under the contributory scheme in order to achieve greater distributive justice and gradually bringing the contributory and statutory schemes closer together, various structural improvements to pensions under the contributory scheme were introduced by the Act of 24 April 1991, in particular the introduction of the right to an early old-age pension at the age of 57. The transformation of the advance on future adjustments of 7% set out in the Act of 27 July 1987 into a definitive structural improvement, the increase of around 10% in all pensions, the change in the method of calculating future adjustments and the increase in the contribution ceiling are the essential elements of the attempt to bring the pensions of the two schemes closer together.

The law of 3 August 1998 introduced special pension schemes (which, however, are broadly similar to the general pension scheme in the private sector) for public sector employees who entered service after 31 December 1998. Employees who were in service on that same date have had their old statutory system abolished and are subject to a special transitional scheme.

On 1 April 2000, the government commissioned the International Labour Organisation to carry out a study on the actuarial and financial situation of the general pension scheme. This study, presented in February 2001, concludes that calculations under the status quo show that the financial situation of Luxembourg's general pension insurance scheme is sound. Following publication of the ILO report, the government convened a round table on pensions with representatives of parliamentary groups and social partners. The conclusions reached at this round table were reflected in the law of 28 June 2002, which provides for a linear increase in fixed increases of 11.9%, the allocation of an end-of-year allowance, an increase in the rate of proportional increases from 1.78% to 1.85%, the introduction of a staggered increase according to age and insurance record, and the raising of minimum pensions to the level of the minimum social wage in semi-net terms, raising the guaranteed minimum income immunisation rate to 30% for working people and pensioners, awarding surviving spouse's pensions at 100% if the pension is below the level of the minimum pension, repealing anti-overlapping provisions in the event of combination of a surviving spouse's pension with an orphan pension, extending baby-years for births prior to 1 January 1988; the introduction of a lump-sum education allowance for women who were unable to benefit from the "baby years".

The Pension Insurance Reform Act of 21 December 2012 introduced certain changes to pension insurance in order to ensure the long-term viability and financial consolidation of the scheme in the context of increased life expectancy for pension holders in a system that is approaching maturity.

The aim of the aforementioned law is to encourage insured persons to extend their working lives. Its aim is not to simply reduce insured persons' benefits or to recalculate the legal pension age for insured persons, but to encourage them to adapt their behaviour in line with a changing environment. An insured person who retires later and receives a pension for a shorter period will be entitled to higher benefits. An insured person who retires earlier will be able to enjoy a lower pension for longer.

This law also made the legislation on combining a pension with a salary less restrictive. It is now possible to combine a pension with a salary up to a ceiling set at the average of the five highest annual pensionable incomes.

In addition, the law of 21 December 2012 reforming pension insurance introduced a differentiation between, on the one hand, the mechanism for revaluing the salaries recorded in the insured person's career when calculating the pension, i.e. for updating the salaries recorded in the career at 1984 base year value to the level of salaries in the economy at the time the pension is calculated and, on the other hand, the mechanism that consists of adjusting the level of pensions to the evolution of salary levels as and when the pension is paid. Thus, the term "revalorisation" (revaluation) is used in the context of the entry of salaries and income in the career in 1984 values and at the time of the initial calculation of the pension at the time of granting a pension, and the term "réajustement" (readjustment) is used to adjust pensions in payment to changes in salaries.

(Source: Inspection générale de la sécurité sociale - Droit de la sécurité sociale - 2013)