Pension crisis on the horizon: CNFP predicts Luxembourg's budget deficit

A new analysis of Luxembourg's budget, presented by CNFP director Romain Bausch, shows that the country's fiscal outlook is improving. Compared to the March 2024 forecast, the expected deficit has been reduced by €493 million per year for the period 2024-2027. This improvement has occurred even against the backdrop of lower economic growth and the introduction of the "Entlaaschtungs-Pak" tax relief package in the summer of 2024. The CNFP predicts that the actual financial situation will be even better than stated in the current budget.

Since 2015, the CNFP has played a key role in monitoring compliance with budget rules and macroeconomic forecasts in Luxembourg. While long-term projections have many uncertainties, the issue of demographic change and population ageing is becoming central to the debate on the country's economic future.

Despite this, MPs questioned the Ministry of Finance's strategy of overestimating the deficit. The idea of a sovereign fund was discussed, where budget surpluses could be channelled for future use.

The long-term sustainability of the pension system has been a major concern. According to the CNFP, the first social security deficit is expected as early as 2028, and transfers from the General Compensation Fund (FDC) to the Pension Fund will start in 2026. CNFP representatives have proposed several scenarios based on data from the European Commission's Ageing Report 2024. The main scenario assumes that the population of Luxembourg will grow to 976 thousand people by 2027, and a more optimistic scenario - to 1.3 million by 2070.

An interesting conclusion is that with accelerated economic growth, the impact of pension payments on public debt can be contained for longer. Debt is expected to remain below 60 per cent of GDP (the EU's target level) until 2040-2050. However, even these projections are accompanied by considerable uncertainty.