The reform of the pension system is sparking intense debates in Luxembourg, with stakeholders divided over its structure, urgency, and even legitimacy. The government is conducting multiple consultations, and trade unions have formed an unprecedented united front. By summer 2025, initial proposals are expected to clarify the majority’s intentions.
“The objective is to have, by summer 2025, a solid foundation for potential pension reform measures,” states the government. Since the official launch of the discussions in summer 2024, public consultations, expert group meetings, stakeholder discussions, and parliamentary debates have taken place. Given the sensitivity of the issue, unions have even decided to join forces in a historic common front, leading to heated discussions.
However, just a year and a half earlier, during the legislative election campaign, no strong political will for pension reform was apparent. Government parties carefully avoided the politically explosive and electorally costly issue. Yet, soon after the elections, the new CSV-DP majority put the topic on the agenda and announced a broad consultation process in summer 2024.
+8.3% GDP Share by 2070
The debate appears justified given the country’s situation. According to an April 2024 report from the Ageing Working Group (AWG) of the European Commission, Luxembourg’s pension budget is projected to rise from 9.2% of GDP in 2022 to 11.8% in 2045 and 17.5% in 2070—the highest share in the European Union. Over this period, this represents an increase of +8.3%, the largest within the EU.
However, the OGBL, Luxembourg’s largest trade union, considers these projections exaggerated. It points out that the national statistics institute (Statec) presents a much more moderate scenario, estimating pension expenditures at 12.8% of GDP by 2070—only half the increase predicted by the European Commission.
“Ignoring the issue would mean assuming that 1.2 million contributors will exist tomorrow to fund the pensions of today’s 500,000 workers.”
No Urgency, Say Unions
Moreover, unions argue that there is no urgency for reform. The pension system, they claim, has a comfortable margin, with reserves exceeding €27 billion in 2023—enough to cover expenditures for 4.3 years without additional contributions.
But for how long? While the social security budget showed a €1.05 billion surplus in 2023, projections from the General Inspectorate of Social Security (IGSS) suggest a decline: €861 million in 2024, dropping to €261 million by 2027, potentially turning negative if employment trends worsen.
Number of Pensioners to Triple in 50 Years
Until now, Luxembourg’s strong employment growth—and the associated contributions—has sustained the pension system’s surplus. However, this dynamic could soon become its Achilles’ heel, as the number of retirees is set to surge.
In 2022, Luxembourg had around 500,000 workers supporting approximately 200,000 pensioners. By 2050, the number of pensioners is expected to more than double and could triple by 2070. Given that Luxembourg’s pension system operates on a pay-as-you-go basis, the current balance relies on a larger number of active contributors.
One Million Residents and Doubling of GDP Required by 2050
“This has worked so far thanks to job creation,” notes business representatives in their statement to the Economic and Social Council (CES). “Ignoring the issue would mean assuming that 1.2 million contributors will exist tomorrow to fund the pensions of today’s 500,000 workers, which seems highly unrealistic.”
According to the Idea Foundation, a think tank linked to the Chamber of Commerce, maintaining balance would require reaching one million residents by 2050 or 2060 and relying heavily on cross-border workers to create new jobs—doubling GDP by 2050. However, sustaining such high economic growth—5% annually—is difficult to envision in the coming decades.
Pessimistic and Unreliable Projections, Say Unions
Unions contest the projections used to justify urgent pension reform, arguing that past forecasts have systematically underestimated Luxembourg’s economic performance. “Previous decades’ predictions never materialized and were marked by systemic pessimism,” OGBL states. “In the 1990s, multiple analyses forecast a pension crisis by the early 2000s—yet, in reality, the system’s financial situation has only improved.”
But can Luxembourg replicate its past economic success? This remains uncertain. The country is already struggling with a severe housing crisis and overloaded transportation infrastructure due to rapid demographic growth in recent decades.
Reserves Depleted by 2045
It is difficult to imagine accommodating one million residents amid skyrocketing housing prices or attracting more cross-border workers, whose numbers have stagnated in recent years.
Recent figures based on updated economic and demographic projections suggest caution. The latest IGSS scenario, presented in February, identifies key milestones for pension system financing. A semi-automatic adjustment mechanism (“adjustment moderator”) could be triggered by 2026, earlier than the previous estimate of 2028. The legal threshold for reserve depletion, initially projected for 2041, is now set for 2039. Finally, the pension reserves are expected to be exhausted by 2045, three years earlier than previously estimated.
“Previous decades’ predictions never materialized and were marked by systemic pessimism.”
An Urgent Reform from a Social Perspective
Time for reform is running out. Economists at the Idea Foundation have outlined two scenarios to maintain balance until 2050: one with immediate reform, the other with reform postponed to 2040, assuming a 2% annual growth rate. The results are stark: with immediate reform, pensions in 2050 would be 12% lower than today, whereas delaying reform until 2040 would result in a 30% reduction. “Reforming sooner would allow for less painful social adjustments,” warns Vincent Hein, director of the think tank.
If a reform is implemented, the key question remains: what concrete measures will be taken? Will the contribution rate or retirement age increase? Will benefits decrease? Will the gap between the legal retirement age (65) and the actual average retirement age (60, one of the lowest in Europe) be reduced? Will complementary pension plans become more attractive? Or, as unions propose, will contribution ceilings be lifted (€676 million in lost revenue in 2022), a progressive tax targeting capital gains be introduced, or contribution periods be extended?
Will Civil Servants’ Pensions Be Affected?
The proposals expected by summer 2025 should provide more clarity. However, no radical transformation appears likely. The majority of participants in the public consultation from October to December 2024 expressed support for “moderate reforms, favoring balanced and realistic adjustments to improve the existing system rather than a radical overhaul,” according to the government.
Another key demand was harmonizing pension systems for public and private sector employees. However, whether civil servants’ pensions will be included in the reform remains uncertain. The private sector workforce consists largely of foreign residents and cross-border workers, whereas civil servants are predominantly Luxembourgish. These citizens, eligible to vote in legislative elections, could penalize any government attempting to reduce their pension privileges.
This article was published in the 5th edition of Forbes Luxembourg magazine.
