The Provident Fund of Municipal Agents (CPFEC) is expected to have a deficit of €63.5 million by 2024. The Union of Cities and Municipalities in Luxembourg (Syvicol) sounded the alarm after its last meeting in May as the municipalities will no longer be able to cover the deficit in the coming years.
Last year, 4,778 civil servants contributed to the fund while 3,340 pensions worth a combined total of €237 million were paid out.
A combination of factors explains the deficit, according to Jean-Lou Hildgen, CPFEC vice president and civil servant at the Ministry for Home Affairs. As more people are retiring than in previous years and retirees tend to live longer, the age pyramid is slowly reversing. “We have also noticed that, particularly from 2017 onwards, the number of members has stagnated or even fallen slightly”, stated Hildgen.
This is not because there are fewer employees, but because they are hired differently. In this regard, Hildgen referred to a recent reform of the Grand Ducal Fire and Rescue Corps (CGDIS), which resulted in the transfer of emergency service personnel from local authorities to the government. Then there are the people working in socio-educational domains, who generally contribute to the National Pension Insurance Fund (CNAP) rather than the CPFEC.
The Luxembourg pension system operates on a transfer basis and the solution to the CPFEC’s current deficit is retained by law: if a pension fund has a deficit, contribution rates are increased by ministerial decree to cover it. In the short term, Minister Bofferding plans to increase the contribution rate for municipalities from 35% to 48.29% to cover the deficit. The contribution rates for insured people will remain unchanged.
However, the Syvicol does not agree with a short-term increase in its contributions as it fears that this will not solve the problem of the Fund’s structural deficit: “It might be good, but only as a band-aid for now” says Syvicol president Emile Eicher.
Minister Bofferding agrees that a “structural reform” is needed and has expressed a willingness to contemplate the idea of distributing the additional burden proportionally between municipalities. But, “no other proposal has come from them, so there is nothing left to do but issue a decree now so that pensions are guaranteed.”
