RTL Today - RTL Fact Check: Six key questions about Luxembourg’s pension reform

Pension reform for the private sector currently under discussion in Luxembourg is entering its final phase. We ask six key questions.

1. Do Luxembourgers retire early?

With a legal retirement age of 65, Luxembourg is neither the most generous nor the most demanding country in Europe for workers. However, the Grand Duchy requires a career of 40 years to qualify for full pension benefits—less than in other countries, where the requirement ranges between 41 and 43 years in France, and 45 years in both Germany and Belgium.

According to the General Inspectorate of Social Security (IGSS), Luxembourgers who retired between 2011 and 2023 were, on average, 61 years and 3 months old. Three out of four took early retirement, while only one in four retired at the legal age of 65.

Health Minister Martine Deprez recently assured parliament that the government does not plan to change the legal retirement age of 65. However, growing voices are calling for measures to encourage people to extend their working lives—either through stricter rules (such as raising the required contribution period or delaying early retirement eligibility) or by introducing incentives to work longer, such as penalties for early retirement or bonuses for later retirement.

In a study published in early April, Fondation IDEA noted that Luxembourg guarantees the longest retirement period in Europe: 25 years. With life expectancy rising, the think tank proposed linking both the retirement age and contribution period to life expectancy, to ensure that time spent in retirement does not continue to outpace time spent working.

2. Are pensions too high?

At the end of 2023, pensions in Luxembourg averaged €2,398.30 per month, combining all possible types (old-age pensions, early retirement, survivor’s pensions, disability pensions, etc.).

Retirees who worked exclusively in Luxembourg received an average pension of €3,570, while those who also worked abroad received significantly less – around €1,614.50. In the latter case, individuals also receive pension payments from abroad to complement their pension in Luxembourg.

According to the website Toute l'Europe, in 2020, Luxembourgish pensioners had incomes around 10% higher than those of people currently working – an exception in Europe.

However, this comes with major disparities. The minimum pension does not protect against the risk of poverty (a point addressed in the next section) – while the highest pensions – capped at around €10,600 – are five times higher, though paid to only a very limited number of individuals.

3. Is Luxembourg's minimum pension insufficient?

The minimum pension for a 40-year career will amount to €2,293.55 gross per month as of 1 January 2025. According to the Chamber of Employees (Chambre des Salariés), this is below the poverty threshold.

According to the Chamber: an individual with a net income of less than €2,452 per month was considered at risk of poverty. This means that many pensioners, despite having completed a full career, are living on a gross income that is lower than the net income required for a "dignified life."

The Chamber of Employees also states that “18 percent of residents receive a pension of less than €2,000 gross per month.” The minimum pension is mainly received by women, further widening the pension pay gap and extending the inequality that historically existed during their working lives.

4. Are IGSS forecasts pessimistic?

The government is acting based on projections from the IGSS, which warn that – if no action is taken – pension payments to pensioners will soon exceed the revenue generated from increased contributions.

The 2016 report predicted that the tipping point would be reached by 2023. When the calculations were updated in 2018, the estimate shifted to 2024. The 2022 report then forecast a shortfall starting in 2027. However, the most recent estimate – published in early 2025 – now brings the projected deficit forward to 2026.

Frequent adjustments to the forecasts are largely due to fluctuations in Luxembourg’s economic growth, demographic changes, and the return on investment from the Compensation Fund – boosted by financial markets. These factors have so far helped keep the system balanced, but they have also made short-term predictions uncertain.

Despite the uncertainty, politicians, trade unions, and employers agree that it would be irresponsible to rely on baseless optimism in the years ahead.

In the medium to long term, the IGSS estimates that Luxembourg’s pension reserves could be entirely depleted within the next two decades.

5. Should the contribution ceiling be abolished?

In 2025, Luxembourg allows employees to contribute to the pension system only up to a certain income limit – five times the minimum wage, or just over €13,000 per month. Any earnings above that threshold no longer count towards pension contributions and do not increase future pension entitlements.

One possible reform would be to lift or remove this ceiling in order to increase revenue for the pension system. According to the Fondation IDEA, however, high earners who pay more would logically expect higher pensions in return – a change that could unbalance the system. To avoid this, IDEA proposes another scenario for public finances: applying a reduced contribution rate above the ceiling.

Trade unions, for their part, have suggested removing the contribution cap entirely, but without granting high earners additional benefits. This would generate more funds for the state, but also risk deepening inequality between top earners and the rest of the population.

Ultimately, this politically sensitive decision rests with the government.

6.Should the pension reserves be used for projects and investment?

With Luxembourg facing the risk of a pension system deficit starting in 2026, the question arises: why not make use of the massive reserves that have been built up over the years? These reserves currently amount to nearly €27 billion – more than four years’ worth of pension spending, in the event that contributions were to stop overnight.

According to the IGSS, however, the current model would fully deplete these reserves by the 2040s. At a roundtable organised by the Fondation IDEA on 3 April, the Union of Luxembourgish Businesses (UEL) argued that pensioners must not be allowed to burn through the financial cushion. “The reserve must be safeguarded. Please, don’t touch it,” urged Marc Wagener, UEL’s director, addressing fellow participants.

This position was supported by the Fondation IDEA, which also rejected the notion that it was following a “pro-business” line. “Pensioners cannot retire while already receiving incomes that are 10 percent higher than those of the active population,” said Vincent Hein, IDEA’s director.

The debate also served as a reminder that downturns in Luxembourg’s capitalist economy generate income – because the pension reserves are invested in financial markets, their returns help finance the system. Using those reserves now could reduce that future revenue stream.

Opposition MP Djuna Bernard (The Greens) also argued that the reserves were never intended to be “completely used up.” And economist Muriel Bouchet, former director of Fondation IDEA, added a warning: the longer Luxembourg waits to re-balance the system, the greater the effort will be to correct it.