Upload
kisha
View
29
Download
0
Tags:
Embed Size (px)
DESCRIPTION
Inspection générale de la sécurité sociale (IGSS) Reforming the LU pension system ELSA May, 2 nd 2012. Context Ageing society : life expectancy at age 60 increases by over 5 years over the period 2010-2060. Life expectancy at 60 - males, EUROSTAT. Context (cont.) - PowerPoint PPT Presentation
Citation preview
1
Inspection générale de la sécurité sociale (IGSS)
Reforming the LU pension system
ELSAMay, 2nd 2012
Context
Ageing society: life expectancy at age 60 increases by over 5 years over the period 2010-2060
2
Life expectancy at 60 - males, EUROSTAT
10,0
15,0
20,0
25,0
30,0
35,019
71
1976
1981
1986
1991
1996
2001
2006
2011
2016
2021
2026
2031
2036
2041
2046
2051
2056
Context (cont.)
«Luxembourg sucess story»: over 4% of economic growth on average over the period 1980-2010
3
0
5000
10000
15000
20000
25000
30000
35000
40000
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
non resid
resid-non lux
resid-lux
New entrants to the general pension scheme, IGSS
15
16
17
18
19
20
21
22
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Average entry age of lux. new entrants - males, IGSS
Context (cont.)
Pension level
4
gross
replacement rategross pension
wealth
Belgium 42 7France 49 9Germany 42 8Luxembourg 87 21
Pensions at a glance, OECD
5
Past evolutions
December 2005: IGSS long term projections on general pension scheme April 2006: Tripartite coordination committee - working group on pensions April 2009: IGSS report on reform proposals presented to parliament July 2009: pension reform included in the government program January 2010: approval of general orientations by government March 2010: endorsement of global concept by parliament June 2010: public debate on pensions in parliament March 2011: discussion of proposals in parliament April 2011: presentation of reform to social partners January 2012: agreement by the government on bill ....
Overview of the system
Old age schemes
general pension scheme for the private sectorspecial pension schemes for the public sector
supplementary pension schemes for the private sectorprivate pension planssocial assistance
Risks covered by pension schemes
disability, early old age, old age and survivor
6
Overview of the system (cont.)
Pension formula (general scheme + new special schemes)
P = P1 + P2 + P3 + P4, where
P1 = min[40,QY] / 40 * 0.235 * SMI (flat part)
P2 = 0.0185 * I (proportional part)
P3 = ( max[0,age - 55] + max[0,CY - 38] ) * 0.0001 * I (proportional increases)
P4 = min[40,QY] / 40 * 0.025 * SMI (end of year allowance)
I: total income over the career (at 1984 wage level)SMI: social minimum income (at 1984 wage level)CY: contributory yearsNY: non-contributory yearsQY: qualifying years (CY + NY)
7
Overview of the system (cont.)
Retirement age
57 if CY >= 40
60 if (CY+NY) >= 40
65 if CY > 10
Financing (general scheme)
8% employer/employee/central government
reserve fund > 1.5 times annual expenditures over a fixed 7 period
Indexation of pensions (to prices)
100% to price evolution (CPI)
8
Overview of the system (cont.)
Pension adjustment (to wages)
“Every two years, the Government considers whether to proceed or not to revise the adjustment factor by law, given the resources and the evolution of the average level of wages and salaries.” (article 225, paragraph 4, Code of social security CSS)
9
wage
20(1984)
60 80
wage base 1984
pension base 1984
pension
adjustment coefficient adjustment
factor
age
retirement
Overview of the system (cont.)
System parameters (general scheme)
10
pensions per 100
contributorsrequired
contribution rate
reserve fund as multiples of annual
scheme expenditure
1980 48.6 22.8 2.0
1990 47.0 22.7 2.6
2000 43.2 20.8 2.9
2010 39.9 20.8 3.8
Rapport général sur la sécurité sociale, IGSS
Expected future evolution of pension system
Reserve fund (general scheme, %of GDP)
11
Pension expenditures (general scheme and special schemes, %of GDP)
0%
5%
10%
15%
20%
25%
30%
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2% full
3% full
-400%
-350%
-300%
-250%
-200%
-150%
-100%
-50%
0%
50%
100%
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2% full
3% full
2% scenario, AWG – 3% scenario, IGSS
2% scenario, AWG – 3% scenario, IGSS
Policies under the actual legislation
Pension benefits (article 225 CSS): expenditures (% of GDP) and gross replacement rate
12
0%
5%
10%
15%
20%
25%
30%
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2% full
2% half
2% scenario, AWG Gross concept, OECD methodology
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012
2052
ful
l ad
j.
2052
hal
f ad
j.
earnings related (P2+P3)
f lat part (P1)
Policies under the actual legislation (cont.)
Contributions (article 238 CSS): required contribution rate and net replacement rate
13
2% scenario, AWG Net concept, OECD methodology
0%
10%
20%
30%
40%
50%
60%
70%
80%
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2% full
2% half
0%
20%
40%
60%
80%
100%
120%
2012
2052
ful
l ad
j.
2052
hal
f ad
j.
earnings related (P2+P3)
f lat part (P1)
Pension reform
Longevity anchored in pension formula
14
proportional part (P2)
flat part (P1)
proportional increases(P3)
rate (%) rate (%) age+CY p.p. increase
< 2013 1.850 23.500 93 0.010
2020 1.800 24.000 94 0.013
2030 1.738 24.630 96 0.017
2040 1.675 25.250 97 0.021
2050 1.613 25.880 99 0.025
> 2052 1.600 26.000 100 0.025
Pension reform (cont.)
Longevity anchored in pension formula (cont.): gross replacement rate
15
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2052
ful
l ad
j.
2052
re
form
2052
+3
refo
rm
earnings related (P2+P3)
f lat part (P1)
Gross concept, OECD methodology
Pension reform (cont.)
Sustainabilty mechanism
legal contribution rate fixed at the beginning of a 10 year period so that the reserve fund > 1.5 times annual expenditure over this 10 year period
if legal contribution rate < required contribution rate, expenditures exceed receipts and the reserve fund covers the deficit, then the mechanism comes to play
16
required contribution rate26%
28%
24%
28%
legal contribution rate
fixed 10 year period
no sustainability mechanism
required contribution rate26%
28%
24%
26%legal contribution rate
fixed 10 year period
sustainability mechanism
Pension reform (cont.)
Sustainability mechanism (cont.)
if legal contribution rate < required contribution rate, reduction/drop of adjustment of current pensions to wage evolution
17
wage
20(1984)
60 80
wage base 1984
pension base 1984
pension
valorisationcoefficient valorisation
factor
age
retirement
readjustmentfactor
if legal contribution rate < required contribution rate, drop of the end of the year allowance (P4 in pension formula)
Financial impact of the reform
Expenditures (general and special schemes, % of GDP)
18
0%
5%
10%
15%
20%
25%
30%
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2% full
2% reform
0%
5%
10%
15%
20%
25%
30%
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
3% full
3% reform
2% scenario, AWG 3% scenario, IGSS
Financial impact of the reform (cont.)
Required contribution rate
19
0%
10%
20%
30%
40%
50%
60%
70%
80%
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2% full
2% reform
0%
10%
20%
30%
40%
50%
60%
70%
80%
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
3% full
3% reform
2% scenario, AWG 3% scenario, IGSS
Financial impact of the reform (cont.)
Reserve fund (% of GDP)
20
2% scenario, AWG 3% scenario, IGSS
-420%
-370%
-320%
-270%
-220%
-170%
-120%
-70%
-20%
30%
80%
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2% full
2% reform
-420%
-370%
-320%
-270%
-220%
-170%
-120%
-70%
-20%
30%
80%
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
3% full
3% reform
Social impact
Net replacement rate: 2% and 3% economic growth (AWG and reform scenarios)
21
Net concept, OECD methodology Net concept, OECD methodology
0%
20%
40%
60%
80%
100%
120%
2012
2052
ful
l ad
j.
2052
re
form
2052
+3
refo
rm
earnings related (P2+P3)
f lat part (P1)
0%
20%
40%
60%
80%
100%
120%20
12
2052
ful
l ad
j.
2052
re
form
2052
+3
refo
rm
earnings related (P2+P3)
f lat part (P1)
Thank you for your attention
22