Raising the retirement age in Luxembourg will only delay the collapse of the system
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According to the June report of the Inspectorate General of Social Security (IGSS), even such an ambitious measure as a phased increase in working life by five years will not save the Luxembourg pension system from deficit - it will only postpone it by 4-5 years. If today the reserve still covers the costs, then from 2026 the system will start to go into deficit, and by 2045 the fund may be completely exhausted.
Luc Frieden's government has presented a pension reform plan for May 2025, which has caused concern among workers. The retirement age in Luxembourg is now set at 65, with 40 years of contributions, but many citizens retire earlier. One of the key elements of the reform is to gradually increase the length of employment by 3 months a year for 20 years. This would mean that future generations would work until age 70 to receive a pension on the same terms.
IGSS analysed two scenarios:
- "Standard", in which employment growth is assumed to be overall;
- A scenario with no additional employment growth, in which increasing seniority constrains recruitment of new employees.
Projections showed that the reform would increase the active population by 24,000 in 2035, while the number of pensioners would decrease by 18,000. By 2070, this difference will reach 117,000 and 129,000 respectively.
However, this is only a relative relief. In the long term, the IGSS warns, the effect will be offset: those who worked longer will receive higher pensions, which will eventually increase the financial burden. Thus, even with positive demographic dynamics, the budget deficit of the pension system will still occur - just not in 2045, but in 2048 or 2050.
Social Protection Minister Martine Deprez has previously stated that inaction "is not an option". However, the IGSS emphasises that delaying retirement alone will not solve the problem. Nor will raising social contributions to 11 per cent help, as even this will not cover the gap in the future.
Pension reform in Luxembourg will require a combination of measures, among which may include:
- gradual increase of the retirement age;
- increase in social contributions;
- adjusting the formula for calculating pensions;
- Stimulating employment of the elderly;
- more active migration policy to attract young able-bodied population.
A key meeting between the government, trade unions and employers is expected to take place in September. But it is already clear: the reform will be complicated and probably painful - both for the budget and for some citizens.
