RTL Today - Luxembourg Employers' Association: 'We must act now' to secure pension system's future

With reserves expected to run dry in the next decade, the UEL is pressing for urgent reforms to secure the sustainability of Luxembourg's pension system.

In the coming months, the government is expected to tackle the issue of pension reform–undoubtedly one of the most challenging tasks of its term. Prime Minister Luc Frieden recently acknowledged the complexity of the issue at the end of a Government Council meeting, where the ongoing Caritas affair took centre stage. Frieden assured that pensions would be addressed through an "open debate," with a public consultation planned in the months ahead.

In response to these developments, the Luxembourg Employers' Association (UEL) organised a roundtable discussion on Thursday to "put the debate into context." Central to the discussion was a report by the General Inspectorate of Social Security (IGSS), which forecasts an imbalance in the pension system by 2027. This report has already sparked significant media attention and is expected to drive the upcoming public discourse as the potential tipping point approaches.

So far, potential solutions to the pension challenge have been limited. A proposal put forward by the Idea Foundation in early 2024 suggested raising the retirement age. Another option is reforming the Civil Service Pension Fund, which could reduce public spending significantly. For years, the Luxembourg government has been filling the funding gaps in the civil service pension system.

"The current system is unsustainable"

Before discussing specific solutions, UEL representatives emphasised that they have "nothing to gain or lose" from the issue. UEL President Michel Reckinger stressed that the main priority is to "ensure the sustainability of the pension system" in Luxembourg–a system that UEL experts warn is heading straight for disaster.

From left to right: Marc Wagener, Director of the UEL, Michel Reckinger, President of the UEL, and Nicolas Simons, Chief Economist at the UEL. / © Gaël Arellano/ RTL Luxembourg

"The current system is unsustainable," said UEL Director Marc Wagener. Referring to the IGSS report, he pointed out that the substantial reserves accumulated over recent decades will be depleted within 10 to 15 years, and the pension system will begin running a deficit by 2027. In practical terms, this means revenue will no longer be sufficient to cover pension expenditures, largely due to a sharp increase in the number of retirees in the coming years.

To maintain a balance between revenue and expenditure in the short term, employment growth would need to accelerate rapidly–an unlikely scenario, according to UEL experts. "Employment will not continue to grow as it has over the past 20 years," Wagener predicted. He also dismissed the idea of increasing contributions "every five years" as impractical, emphasising the need to keep Luxembourg economically attractive. With the IGSS forecasting around 385,000 pensioners by 2030, the challenges are clear.

High pensions represent "a significant burden on public finances"

On Thursday, the UEL unveiled a seven-point plan, with a major focus on maintaining the current contribution rate. However, this approach will, of course, not generate sufficient revenue. To address this, the UEL is proposing cuts on the expenditure side, particularly by targeting the highest pensions. Wagener noted that Luxembourg's pension levels are "exceptionally high by international standards," and reducing large pensions is a logical first step. "It represents a significant burden on public finances," he explained.

Nicolas Simons, chief economist at the UEL, echoed concerns about unsustainable pension levels, stating that "certain pension levels are too high." He also cautioned against relying on employment growth to offset the rising costs of pensions. "The past is playing tricks on us," he said, referring to the previously strong performance of Luxembourg's labour market. The three UEL representatives emphasised that the IGSS predicts revenue stabilisation rather than growth in the coming years, while expenditure is expected to "soar."

Michel Reckinger noted that the IGSS forecasts should be viewed as "very optimistic." Considering that the report projects a deficit by 2027 and the depletion of pension reserves within the next 15 years, the urgency is clear. In light of these predictions, the UEL has called for immediate action to address the pension crisis. An initial meeting between employers and the government is set for October.