Young workers fear ‘unfair’ pension system as fund depletion looms by 2045

While the national youth council was involved in the early stages of the pension reform debate, the last round of talks – that cemented government plans to increase contributions and working life spans – saw young people without a seat at the table, and they are largely unhappy with the outcome.

The government met with OGBL and LCGB trade unionists as well as employer federation UEL for talks in July and September. Under the planned outcome of the talks, to be approved by parliament, retirement contributions will rise from 24% to 25.5% of income, divided equally between employers, the state and employees.

“What I don’t understand is if they say that the current pension system is unsustainable, then why is there no talk of reducing the pension amounts that are paid out? Why is there no talk of reducing the year-end bonus that pensioners get, for example?” asked a 28-year-old Luxembourg national working at a finance firm, who wanted to remain anonymous to avoid controversy in the workplace.

Young working people feel that the problem is simply being kicked further down the road, with no sustainable solution in sight. “It was already very well known in the early-to-mid ‘80s that the current pension system was not sustainable at all, but guess what – they kept it like it was to get big pensions and to not endure hard reforms while they still worked and ‘gifted’ us that problem so they don’t have to deal with it,” said a 34-year-old Luxembourger working in a blue-collar job.

Those in their 20s, 30s and 40s, for whom retirement is still decades away, also worry whether they will see any pension at all when they retire. “The government itself says the pension fund will be depleted in 2045. So when I retire, I may not get any pension. Yet they are asking me to pay more of my salary into the pension system. It’s absolutely unfair,” the finance professional added.

The Ministry of Health and Social Security told the Luxembourg Times that it is not only young people who will pay more but everyone who is currently working.

“The actual proposal is to increase the contribution rate by 0.5 percentage points for all active contributors to the pension scheme, so it cannot be stated that only young people are taxed,” a ministry spokesperson said. The government has said that the proposed reforms will extend the life of the pension fund by four years from 2045 to 2049. 

Nevertheless, young people this newspaper spoke to believe that the government’s proposal is fundamentally biased against those in their 20s, 30s and even 40s.

Liam Bremer, president of Luxembourg’s national youth council, the Jugendrot, agrees and argues that the reform in its current form will only impact young people adversely. 

“Current pensions are adjusted for inflation, then there is also readjustment through which pensions rise in accordance with rises in wages,” he told the Luxembourg Times. “It is unfortunate that the reform is biased against working people, and then by extension even more biased against young people.” 

President of the Jugendrot, Liam Bremer. © Photo credit: Jugendrot 

“Current pensions are adjusted for inflation, then there is also readjustment through which pensions rise in accordance with rises in wages,” he told the Luxembourg Times. “It is unfortunate that the reform is biased against working people, and then by extension even more biased against young people.” 

He also feels that the government’s proposal to increase the effective retirement age by eight months over five years will not have any significant impact on the sustainability of the system. Currently, while the legal retirement age is 65, the average retirement age in Luxembourg is actually just 59, the lowest in Europe.

“[The] government is assuming that by increasing mandatory contribution years that this will automatically result in an increase in retirement age, I don’t think that will be necessarily true in all cases. Because a lot of people who are retiring now, they are already contributing 42 years. Let’s take a hypothetical scenario of a person who starts studying at 18. They study for seven years and then they get a job. And they keep working till 60. They have contributed 42 years,” Bremer said. 

No voice in the discussion 

Beyond the financial burden, young people say they have had very little representation in the pension debate. The government’s negotiations prompted by union-led protests in June took place between the cabinet under Prime Minister Luc Frieden, employer representatives and labour unions, with youth organisations sidelined.

“The whole discussion is dominated by older men who are close to retirement themselves. There is no representation of young people in the discussions,” said the 28-year-old finance professional. “It is a system designed by the old and paid for by the young.”

It is unfortunate that the views and needs of young people were not taken into account 

Liam Bremer

President, Jugendrot

The Jugendrot was involved in the early stages of the discussions – the so-called Schwätz mat phase, which included expert meetings, consultations and a youth dialogue, said Bremer. But it wasn’t part of the social dialogue where the hard negotiations happened.

“It is unfortunate that the views and needs of young people were not taken into account and this will have to change if the pension reform has to be made sustainable in the future,” said Bremer. 

Frieden had said during his state of the nation speech last June that young people should be involved in the debate. But the civil servant trade union CGFP later warned against “expanding the circle of participants in the discussion too much to not reduce the prospects of reaching a consensus.” It later clarified that it did not mean that it wanted to exclude young people from the debate. 

What are the alternatives ?

It is likely, and the government has conceded as much, that the pension reforms debate is not going away and will return in the coming years. 

“I dont think there is anyone who disagrees that the current pension system is unsustainable even if they dont want to do anything about it. So a debate will need to happen on how to change the system,” said a 30-year-old Spanish national. 

She believes the system should have a certain degree of flexibility. “Maybe allow a more flexible system where people can invest on their own with certain checks so they don’t blow up their money,” she said. 

A lack of financial literacy shouldn’t be used as an argument against opening up the possibility of people investing on their own, said Lovro Miljan, who works as a fund supervisor at HSBC in Luxembourg. “I think it’s politicians in Europe who are afraid of new ideas. Not young people. I mean in today’s day and age, most people can make informed financial decisions. All the information is available,” said the 34-year old.

If you’re planning the future of pensions, you need voices from people who will actually retire in 30 years, not just those retiring in five 

Lovro Miljan

“We should have a system where you can see how much money you put in and you can see what is happening with the money,” he said. “Or you have the option to invest on your own with certain mechanisms to ensure that you invest in relatively safe stuff. We are in the 21st century. Government can give people tutorials or guidelines.” 

There is consensus among young people that a pension reform which is going to impact generations to come must include young people in the debate. “If you’re planning the future of pensions, you need voices from people who will actually retire in 30 years, not just those retiring in five,” said Miljan.