Luxembourg's current pension system is unsustainable, according to the Idea Foundation, which has urged policymakers to act swiftly to avoid significant benefit cuts in the future.

As the debate over Luxembourg's pension system intensifies, opinions remain divided. While some argue for immediate reform, others contend that the current situation is manageable and that postponing action is the wiser choice.
 
However, the Idea Foundation, a prominent think tank, has weighed in, asserting that further delay is no longer a viable option.

Using various calculation methods, the Idea Foundation concluded that the existing pension financing model is unsustainable. The think tank emphasised that relying solely on economic growth will not be sufficient to ensure stability.

Jean-Baptiste Nivet from Idea cautioned that the robust economic growth Luxembourg has experienced since the 1980s is unlikely to continue without additional measures. He highlighted key challenges, such as housing shortages, the climate transition, and mobility issues, as factors placing pressure on the system.

Idea also analysed the timeline for potential reforms and warned that postponing action could prove costly. If Luxembourg waits until pension reserves fall below the legal minimum, retirees could face benefit reductions of between 29% and 38%, depending on the economic context.

Nivet explained that the researchers considered a scenario involving a combination of increased revenues and a relative reduction in benefits over four to five years. This approach would require adjustments to the pension calculation formula to slow the rate of benefit increases. Additionally, new sources of revenue would need to be identified to support the system.

The think tank's calculations are based on a pre-funding level of 10%. Results suggest that expanding reserves and achieving higher returns on investments could significantly improve the situation. While reserves would still decline until 2050, they would not fall as sharply and would remain above the legal minimum, equivalent to one-and-a-half times annual expenditure.

Idea recommended raising the legal reserve minimum. Currently, reserves are four times annual requirements. The think tank suggests this should become the standard.

The Idea Foundation announced plans to present concrete proposals for pension reform next year.