Questioning the financial dependence of the pension system on the constant need for growth!

The financing of the pension system currently assumes considerable growth:

• Increase in the population living in Luxembourg from 625,000 in 2020 to 785,000 in 2070;
• Average increase in the active population of 0.6% per year: from 460,000 in 2020 to 630,000 in 2070;
• Average annual increase in pensioners by 2.3% from 195,000 in 2020 to 605,000 in 2070;
• An average annual increase in productivity of 1.2%;
• An average annual increase in the PIB of 1.8%.

These figures represent a significant increase in PIB. As the increase is exponential, the following picture emerges: with average annual economic growth, economic output in 2070 would be almost twice as high as it is today. Even with major technological advances, resource consumption would increase accordingly.

The Mouvement Ecologique is fundamentally convinced that these growth rates are not sustainable. However, the question arises as to whether they are even realistic from an economic point of view. The Mouvement Ecologique has therefore commissioned the Austrian Institute of Economic Research (WIFO) to analyse the extent to which these assumptions are at all plausible.

The authors’ conclusions are revealing:

Knowing full well that the “economic and demographic development over a period of five decades (is) characterised by considerable uncertainties”, the funding model of the Luxembourg pension system cannot a priori be regarded as sustainable.

The conclusions of the Mouvement Ecologique based on the study:

Financing the pension system in the overall context of a misguided economic system

The unsustainable use of our planet’s natural resources, the overexploitation of our livelihoods, is causally linked to our economic system, its organisation and its driving forces (profit motive and greed, competition between people and nations, excessive private capital accumulation, ruthless exploitation of people and nature).

The current system is simply not compatible with the goals of sustainable development and leads to the destruction of the foundations of human life. This fact is also repeatedly emphasised by international scientific bodies such as the World Biodiversity Council and the Intergovernmental Panel on Climate Change.

Unfortunately, questioning the system is also repeatedly rejected with the argument that the financing of the social system does not allow any alternatives. There is, so to speak, a compulsion to grow.

The fact that securing the financing of the social system – as in the modelling cited – is repeatedly linked to the issue of growth is probably also due to a certain “lack of imagination” or a “persistence with the current system“.

The Mouvement Ecologique is unreservedly in favour of a welfare state model, an efficient social security system that is more than just a safety net against poverty. What is needed is a social system based on solidarity that allows people to lead a good life in all circumstances without having to worry about their material future. A life without material and social fear of the future is the basis for living together in solidarity, but also for tolerance and democracy.

This must apply to current and future generations.

In this respect, this analysis is in no way intended to question the necessity of the solidarity system.

However, it is an appeal to counter the unimaginative nature of the growth dogma with new models of social, ecological and economic development that focus on preserving the natural foundations of life, people and future generations.

Distributive justice (as a reminder, according to Credit Suisse’s Global Wealth Report 2021, 1% of the world’s population owned 46% of the world’s total wealth. The richest 10 % had 82 % of global wealth) – solidarity and ecological sustainability should be the guiding principles. However, this also raises whether a constant increase in material consumption and goods is conducive to a contented life and should therefore continue to be the primary political goal.

After all, it cannot and must not be the case that the current generation not only imposes the burden of climate and biodiversity disasters on future generations, but also a model for financing social benefits that is based on unrealistic parameters.

And this is clearly the case!

It is downright irresponsible to take as a basis a financing system that is based a priori on developments that are not desirable from a sustainability perspective, among other things, and that are also highly uncertain from the outset that they will materialise.

Modelling should be based on desirable and plausible developments. Moreover, the question of financing applies “not only” to the pension system, but also beyond it. There is also the question of sustainable finance that is not based on growth.

Climate adaptation measures will be associated with high costs (although these are ultimately far lower than the costs of inaction, although they still have to be borne). However, factors such as the ageing population will also lead to additional costs due to the maintenance of our solidarity-based social system in all its areas (pension insurance, health insurance, long-term care insurance), additional expenditure on healthcare, public transport and much more.

Ultimately, the analysis once again shows the need for a real debate on the economic, ecological and social orientation of our social and economic model.

In addition to very fundamental considerations, this also includes concrete initiatives such as subjecting the simulations of the increase in PIB and population / commuter movements to a so-called “stress test”. This means analysing what the real social gain of this growth is and who benefits from it and to what extent it is compatible – under realistic conditions – with the goals of biodiversity and climate protection, the limited nature of water resources and the resulting infrastructures. The Mouvement Ecologique has already made this demand on the occasion of the new “programme directeur” of national planning (Annex 2).

Or the analysis and abolition of environmentally harmful subsidies, so that the climate and biodiversity crisis is not also financed with taxpayers’ money (money that is also lacking elsewhere) or the question of greater taxation of capital, the implementation of a sustainable tax reform, etc.

Earth Overshoot Day is published annually by the US organisation Global Footprint Network (GFN). It analyses, individually for each country, but also for the entire world population, on which day of the year we would have used up our resources globally if all people lived like the population of the country being analysed. Last year, this was already the case for Luxembourg in mid-February!

Earth Overshoot Day in particular should make us realise this: From this date onwards, we are living on credit, in a way!

12.02.2024