Luxembourg pension system at risk of deficit: revised forecasts point to crisis as early as 2026
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The Luxembourg Social Security Commission discussed updated projections for the financing of the pension system based on 2024 data provided by the Inspectorate General of Social Security (IGSS). This new data shows that, in the absence of reforms, the pension system will face a deficit as early as 2026, rather than 2027 as previously estimated.
According to the new projections, pension system deficits will begin in 2026, the reserve fund will fall below the critical level of 1.5 per cent of annual expenditure as early as 2039, and full depletion of reserves is expected in 2045. These dates will occur two years earlier than assumed in previous projections.
The main reason for the worsening outlook is the imbalance between revenues and expenditures. Revenues remain stable due to slowing job growth, while pension costs are increasing with the retirement of a large number of employees, including frontier workers. The projections are based on a baseline economic growth scenario of 1.8 per cent, but any downturn in the economy or decline in productivity could precipitate a crisis.
Political reactions to the updated forecasts vary. The opposition has previously criticised the IGSS forecasts, pointing to the omission of labour productivity from the calculations, which could change the timing of the crisis. However, the ruling coalition believes that the updated figures confirm the need for an immediate discussion on reforms due to the threat of a deficit as early as 2026. In these circumstances, there is little room for manoeuvre.
Against the backdrop of a worsening imbalance between income and expenditure, MPs are discussing possible reforms that could include changing the retirement age, revising the pension accrual formula, increasing contributions to the pension fund and encouraging labour activity among older workers.
Luxembourg's pension system is facing unprecedented challenges related to an ageing population, an increasing proportion of retirees, slowing job growth and stagnating productivity. Without structural reforms, the pension system could face a serious financial crisis, jeopardising the sustainability of benefits in the long term.
The revised projections have actualised the problem and accelerated the timing of the crisis. Luxembourg needs to implement reforms quickly to preserve the sustainability of the pension system and ensure financial stability in the future. Reforms must take into account changes in the demographic structure and economic realities to ensure a fair and balanced system.
Further discussions and reform proposals will continue in the Luxembourg Parliament in the near future.
