Projections show Luxembourg's pension reserve could be depleted by 2045 without intervention, but even a five-year extension of working lives – a key government proposal – would only postpone the shortfall to 2050, reveals a June IGSS report.

The Luxembourg government is evaluating various measures to protect the country's pension system, including a highly contentious proposal to extend the number of contribution years required for retirement. A June report by the General Inspectorate of Social Security (IGSS) underscores that broader reforms will be necessary, as merely prolonging working lives will not suffice to address the system's financial challenges.

In May, Prime Minister Luc Frieden presented a pension reform plan that has sparked concern among workers. Currently, Luxembourg's legal retirement age is set at 65, with 40 years of contributions required – though many retire earlier. To balance the pension system, which is projected to run a deficit as early as 2026, the government is considering extending working lives.

The IGSS examined this proposal in a June technical report, outlining a gradual increase in working years by three months annually over two decades – totalling five additional years by the end of the transition period. The report explores two demographic scenarios:

  • A 'standard' career extension model,
  • An 'extension without additional employment growth', which assumes fewer new hires as older workers remain in the workforce longer.

RTL

By extending careers by three months a year for 20 years, the youngest workers would be the hardest hit by such a pension reform. / © Studio Republic / Unsplash

According to IGSS projections, extending working lives would boost the number of contributors while reducing retirees. By 2035, Luxembourg could see 24,000 more active workers and 18,000 fewer pensioners. By 2070, these figures could rise to 117,000 additional workers and 129,000 fewer retirees.

These estimates are thus medium- to long-term projections.

Extending working lives alone will not save the pension system

The IGSS report highlights a critical limitation in the proposed reforms: while extending working lives would produce short-term savings by keeping more people in employment, it would also lead to higher long-term costs. This is due to workers accruing longer careers and, consequently, claiming larger average pensions.

Under both scenarios analysed, the pension system would still eventually fall into deficit – prolonging careers would merely delay the shortfall by four to five years. If no reforms are implemented – a scenario Social Security Minister Martine Deprez has repeatedly called "not an option" – the pension reserve is projected to be depleted by 2045.

With the proposed five-year extension (the "Extension" scenario), this threshold would be pushed back to 2050, or 2048 if workforce recruitment slows due to longer careers. However, this merely postpones the problem rather than achieving the government's goal of "sustainable" pension funding.

As highlighted by our colleagues from RTL Infos in this article, pension reform cannot rely on one policy alone – no matter how significant. Prime Minister Frieden's proposal to extend working lives, even if implemented abruptly, would be insufficient on its own. Similarly, raising social contributions to 11% would also fail to fully address the financial gap.

The coming reform will therefore require a combination of measures – a complex mix of adjustments that, depending on final negotiations, may prove unpopular with certain groups.