RTL Infos – We explain: Everything you need to know about pension reform in Luxembourg

In contrast to the very agitated pension reform in France, Luxembourg has been leading a debate on the pension system since October 2024. But unlike France, which experienced significant mobilizations, discussions around the pension reform have taken place so far in a very… Luxembourgish calm!

However, the stakes are immense: the pension system could become deficit within a few years. The government is therefore looking for a solution to guarantee its financing. We cover everything you need to know, point by point.

Why a pension reform in Luxembourg?

Estimates from the General Inspectorate of Social Security (IGSS) predict a serious deterioration of the finances of the pension system.

Still under control today, the annual cost of pensions would exceed workers’ contributions from 2027 (according to the analysis carried out in 2022 by the IGSS). Until the complete exhaustion of the immense Luxembourg reserve (yet filled with more than 27 billion euros) in the 2040s.

The exact date when pension contributions are exceeded is however subject to change, in particular due to the growth of the Luxembourg labor market (there are more and more workers therefore more contributions) and the financial markets (the pension reserve is used to invest and produces a return, which increases its balance).

Who will be affected?

All employees in the private sector in Luxembourg. Whether they are residents of the Grand Duchy or cross-border residents. And of course, retirees, whose pension is today calculated according to the number of years of contributions and the amount of income received during these years.

At this time, the debate is targeted on the general regime, but excludes special regimes for public employment.

“single pension system”. It remains to be seen whether the government will want to carry out a comprehensive reform, likely to annoy civil service employees, the majority of whom are Luxembourgish and therefore voters who should not be alienated.

What are the proposals so far?

To finance the system in the long term, several avenues have been mentioned. Extend the duration of a career, for example. In particular by slowing down early departures, to bring the effective retirement age closer to 65legal age in Luxembourg. The question of contributions is also on the table : since the 24% currently applied would no longer be enough, one of the solutions envisaged is to increase these contributions (paid by the employee, his employer and the State) to 27%.

Change pension calculation is also one of the possible solutions (the latter being composed of a fixed part, applied to all, and a variable part, which depends on the salary level). On this point, numerous very technical adaptations are possible, resulting in a reduction in benefits for all or part of the assets.

It is also possible that Luxembourg will encourage future retirees to focus more on the 2nd and 3rd pillars of the pension system. That is to say those based on the employer and private contributions. Other more technical measures, in particular on the use of contributions to finance certain administrative tasks, are mentioned.

At this stage, nothing has been decided on the government’s sidewhich promises not to close “no door”. It is therefore difficult to predict the outcome of the debates.

Also read – We explain what you absolutely need to know about Luxembourg retirement and its three pillars

How will the debate take place?

The Ministry of Social Security will lead a long series of consultations with unions, employers, as well as several economic bodies in the country. But the debate does not take place within the framework of a tripartite (government-employers-unions) and the meetings take place separately.

A platform was opened to allow workers to react (more than 2,000 suggestions were submitted as of December 1, the date the platform closed). And a questionnaire will supplement the opinions already collected during the year 2025. “At the end of the consultation, the results of all discussions – with stakeholders and the public – will be analyzed by three groups of experts who will be appointed based on the specific topics defined at the end of the consultation phase” details the ministry of Martine Deprez.

A final report must be presented in spring 2025. Before the parties discuss what happens next. In the long term, it is the bill which will finally outline the heart of the reform.

Bosses/unions: total disagreement on reform

During the summer of 2024, employee and employer representatives did not reach a common position. A euphemism when reading their opinions submitted to the Economic and Social Council concerning the situation of the general pension system.

The unions and the Chamber of Employees have identified an imperative: do not reduce the amount of pensions. They list several measures to protect. Including the end-of-year allowance for retirees and the readjustment to real salaries (pensions evolve according to the index AND according to real salaries). Beyond this red line, they want a revaluation of small pensionsin particular by creating a “minimum pension” tax credit.

To support their remarks, they assure that the IGSS forecasts are “uncertain” et “too pessimistic”. Since Luxembourg has a significant safety cushion (around four years of contributions), they suggest regularly taking stock of the situation rather than carrying out a major reform while the exhaustion of the pension reserve is still far away. The other priority being increasing revenue to feed the system. In particular via:

• the removal of the contribution limittoday set at 5x the minimum social wage, without modifying the maximum pension (so high earners would contribute more),
• and above all, by an increase in contributions (from 8% to 9% for employees, the employer and the State), or 27% in total compared to the 24% currently applied. A measure “economically completely acceptable” according to them since Luxembourg’s social spending is among the lowest, they argue,
• they also propose to no longer include the operating costs of the CNAP in the expenses covered by workers’ contributions,
• the reintroduction of a wealth tax
• a solidarity contribution of 1.4% applied to the three financiers of the system, namely the employee, the employer and the State.

The employers focus their arguments on reducing the expenses of a system which “is not sustainable” because it is mainly based on the strong growth of Luxembourg: “we need to act now so as not to have to suddenly reform it in 15-20 years” he warns in his summer 2024 report.

While encouraging maintain the current contribution rate (the employer contributes up to 8%, just like the employee and the State), the bosses have listed several avenues limiting expensestherefore the amount of pensions, starting with the highest. They cite in particular:

• the reduction in the proportional increase rate (the variable part of the Luxembourg retirement system) and an increase in the flat rate (the fixed part granted to all workers),
• the reduction in the contributory ceiling on salaries (therefore the reduction in benefits paid upon retirement, particularly for the better off, because the system “must not be such that it makes it possible to offer pension levels that are too high”),
• the elimination of the end-of-year allowance (it can reach a maximum of €958.92 in 2024),
• the elimination of additional periods (years of study, baby years, retroactive purchase of years, etc.),
• if necessary, the partial or total pause of the readjustment of pensions on real salaries (without however calling into question the index, which is based on the cost of living),
• the limitation of early retirement (from 57 and 60 years today to 59 and 62 years) by encouraging workers to extend their career (without changing the legal age of 65 and the contribution period of 40 years). A measure to be combined with a change in the calculation of pensions according to employers,
• the removal of non-pension-related expenditure from CNAP expenditure.

Other economic bodies in the country, such as the Chamber of Commerce or the Chamber of Trades, have similar opinions and suggest limiting system spending, and pushing back the effective retirement age, rather than increasing its revenues through an increase in contributions. The debate, and a fortiori the future of Luxembourg pensions, will therefore be marked by two very opposing visions.

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