Civil Service Law – Statute governing the Retirement of Public Sector Staff
Fundamental social rights;
Right to social security;
Public sector retirement;
General social security system;
System applicable to public administration staff;
Convergence of pensions;
Caixa geral de aposentações – public sector pension fund;
Principle of proportionality;
Principle of solidarity;
Principle of the irreversibility of fundamental rights;
Economic and financial crisis;
Right to the protection of trust.
RULING No. 862/13
19 of December of 2013
The Constitutional Court held a number of norms contained in a Decree of the Assembly of the Republic and subjected to prior review to be in breach of the Constitution. These norms sought to amend the Statute governing the Retirement of Public Sector Staff, and to revoke norms that add extra time to the length of service people have actually worked in certain especially demanding situations, for the purposes of calculating their retirement entitlements in cases in which pensions are paid by Caixa Geral de Aposentações (CGA, the public sector pension fund).
It found that the measures did not adequately pursue the public interests invoked by the author of the norms (the sustainability of the CGA system, intergenerational fairness, and the need for the country’s different social protection systems to converge), in a way that would have made it acceptable for them to prevail over the injury caused to the rights already acquired by existing CGA pensioners and the latter’s legitimate expectations that the amounts of the pensions they will receive in the future will remain the same. Therefore the Court held that these norms were in breach of the constitutional principle of the protection of trust.
The Decree of the Assembly of the Republic containing the norms before the Court for review was designed to deepen social-protection convergence mechanisms by bringing in measures regarding CGA old-age, retirement, invalidity and survivor’s pensions with a gross monthly amount of more than six hundred euros. It cut the value of pensions subject to the regime set out in the Statute governing the Retirement of Public Sector Staff by ten per cent and provided for the application of a new formula for calculating the pensions. It formed part of the general reform intended to ensure convergence between the general social security system and that protecting Public Administration staff – an idea that dates back almost to the creation of the CGA (which began operating in 1929) itself, albeit the intention was then abandoned more than once, before reappearing with the current Constitution.
The Constitutional Court took the view that the measures contained in the norms questioned would have resulted in an abrupt cut in the pensions concerned, and did not form part of a framework of structural cross-cutting measures designed to ensure across-the-board progress in fulfilling the interest of convergence on other levels.
The petitioner in this case (the President of the Republic) argued that these norms brought about a coactive, unilateral and definitive reduction in pensions by cutting them by a fixed percentage of their gross amount. He said that this meant they should be seen as norms that created taxes. In this respect the Court was of the opinion that the norms affected social rights which are part of legal ‘institutes’ that inform the social security system. Classifying the norms as being covered by social security law would not in itself preclude them from possessing a fiscal nature, but some of the fundamental elements needed to categorise this cut in pensions as a tax were missing. There would be no direct payment to the state of the amount by which the pensions were reduced, inasmuch as within the legal relationship involved in public sector pensions, the entity with the duty to pay those pensions is the same as the one charged by the norms with cutting them. A cut in a pension is itself founded on a legal bond under which there is an obligation to pay that pension; whereas the legal precondition for the formation of the obligation to pay a tax is not linked to any relationship between the taxpayer and the Administration. A tax is a payment that is required of persons who possess the capacity to contribute, within the overall framework of the relationship between the fiscal state and citizens as a whole. This was not the case here, in addition to which the purpose of taxes is to provide general funding for public spending, and not to finance specific public expenses.
On the alleged violation of the principle of protection against reverses in fundamental social rights, the Court emphasised that purely forbidding going backwards in social terms is impracticable, because it would presuppose the idea that the available resources are always going to grow. It may be necessary to lower levels of essential benefits in order to maintain the essential core of the social right in question. From this perspective, guaranteeing the minimum content of the right to a pension may itself mean reducing the amount of that pension.
The Court noted that although the norms before it were intended to have effect in the future – the legal effects of the pension cut would only apply from 1 January 2014 onwards – they addressed legal relations regarding public sector retirement that were formed under an earlier regime. This was a situation of inauthentic or retrospective retroactivity, in which the force of the norms is ex nunc, but they affect rights that were constituted in the past and whose effects are ongoing at the present time.
There are no constitutional rules that would preclude retrospective laws which reduce the quantum of pensions that have already been recognised, but one must gauge whether such laws do respect a number of constitutional principles – namely the principle of the protection of trust, which itself arises out of the principle of legal certainty, which is in turn a material element of the state based on the rule of law.
The Court had already said in the past that from the point of view of the principle of the protection of trust, it is not unconstitutional to decrease the amount of the pensions of CGA beneficiaries. However, it held that the reasons underlying its earlier findings did not apply in the present case.
The budgetary consolidation reflected in these norms only addressed one part of the public pension system (the CGA social protection regime), not all of it. This meant it was the protection of the trust of certain pensioners that had to be considered and weighed against the position of the rest of the country’s public pensioners. At the same time, the new measure was not temporary, but indefinite, given that while reversing it at some time in the future was seen as a possibility, this would depend on a favourable evolution in macroeconomic variables directly linked to an increase in the capacity to fund the structural deficit of the CGA pension system by means of transfers from the State Budget.
The Court said it was necessary to evaluate whether the public interest in reducing the transfers from the State Budget used to finance the CGA’s structural deficit justified cutting the pensions of the CGA’s beneficiaries. The outcome of that evaluation was negative. Firstly, because the CGA pension system was closed to new beneficiaries as of 1 January 2006. The legislator accepted the burden of the system’s financial unsustainability – to which the explanatory preamble to the Decree containing the norms in question specifically refers – as one of the costs of the convergence of the benefit regimes included in the overall public social security system. This is why the Decree said that public sector retirement and survivor’s pensions payable under the CGA regime would be co-funded by “transfers from the State Budget”. The Court noted that in the medium and long terms, a benefit system that no longer accepts new subscribers inevitably ceases to be self-financing and self-sustaining. The numerical ratio of subscribers to beneficiaries will gradually decrease as the former retire, until one eventually reaches the extreme situation in which there are no subscribers left. The continuous fall in this ratio will end up causing the CGA to be funded by transfers from the State Budget, and the contributory regime will turn into a non-contributory one. The future horizon for such a system can never be one of self-sustainability. The Court said that in a system that is closed to new subscribers, cutting pensions is not in itself a measure with the capability to safeguard the system’s sustainability. By itself, a closed system is unsustainable in the medium and long terms. This characteristic means that such a system must necessarily resort to funding from taxation and/or forms of capitalisation, in that it will no longer be viable to resort solely to techniques for sharing out the money that is already in the system.
Secondly, one cannot sacrifice the rights of CGA pensioners and no one else for these budgetary consolidation reasons, inasmuch as it is legitimate for the pensioners in both regimes (the general social security system and the protection system applicable to Public Administration staff) to be considered holders of rights to a pension that possess equal legal consistency: from the constitutional viewpoint, the pensioners in both systems are simply state pensioners, and it is up to the state to guarantee the system under which both types of pensioner have contributed as required to by law. Any inequalities between them at the level of the legal rules governing the two public regimes that have come from the past and have financial consequences in the present cannot be corrected solely on the basis of difficulties experienced by one of the two regimes and by exclusively sacrificing the constituted rights of the beneficiaries of that regime.
The possible solutions to the problem of the system’s lack of financial sustainability must be looked at in terms of the public system as a whole. The problem requires answers that safeguard the system’s fairness on both the intragenerational and the intergenerational levels.
Sacrificial solutions motivated by reasons linked to financial unsustainability are asymmetric or one-off measures, and are intended to achieve goals (avoiding increases in transfers from the State Budget by sacrificing CGA pensioners and no one else) that have no place in the constitutional design of a unified public pension system. The criterion underlying such solutions – the convergence of the systems – objectively contradicts the legitimacy of, and the good reasons for, the trust that had previously been engendered among those beneficiaries in terms of the amount of the pensions that were awarded to them.
The existence at a given moment in time of legal regimes that differ in terms of the conditions required for retirement and the calculation of the ensuing pension undoubtedly resulted from recognition that there were sufficient material grounds to justify the difference between them. One cannot consider the Statute governing the Retirement of Public Sector Staff and the legal rules that complemented it to have been arbitrary pieces of legislation without a legitimate sense and lacking in serious and reasonable grounds. The staff and other agents of the Public Administration who retired under this regime could not but trust that these rules existed in order to protect them in old age and/or invalidity, and that the rules’ ultimate objective was to make the fundamental right to retirement a concrete reality. The existence of a different regime for calculating pensions is entirely the responsibility of the state, which felt it necessary to ensure the protection of Public Administration workers in old age and invalidity in a different way. The principle of trust becomes particularly important in connection with the state’s responsibility for its own actions, in that the increase in the expectation of trustworthiness can only be attributed to the legislator’s own behaviour. The current beneficiaries of the CGA regime fulfilled all the legal obligations that were imposed on them in order to benefit from their pension; they could not have chosen otherwise, so now they cannot be the only ones to pay the price for the difference, on the pretext of the need to restore equality.
The Ruling was unanimous. However, while concurring, two Justices disagreed with the use of the principle of trust as the key control parameter without an autonomous analysis centred on the principle of proportionality. In their view only part of the norms was unconstitutional: the part in which they affected pensions by cutting amounts which, from a normal point of view, are likely to have been allocated to paying expenses that are a mandatory and unavoidable element in providing for pensioners’ needs and commitments, and in which, by so doing, they exceeded the reasonable extent of the sacrifice the citizens in question could be asked to make and excessively hit the most disadvantaged among them.
Rulings nos. 581/95 (31-10-1995); 369/97 (14-05-1997); 435/98 (16-06-1998); 99/99 (10-02-1999); 411/99 (29-06-1999); 72/02 (20-02-2002); 675/05 (06-12-2005); 302/06 (09-05-2006); 437/06 (12-07-2006); 432/07 (26-07-2007); 351/08 (01-07-2008); 128/09 (12-03-2009); 188/09 (22-04-2009); 3/10 (06-01-2010); 396/11 (21-09-2011); 353/12 (05-07-2012); 187/13 (05-04-2013); and 474/13 (29-08-2013).