Luxembourg at a crossroads: four pension reform scenarios from the Idea Foundation

In light of projected deficits from 2026 and an ageing population, the Idea Foundation has published four possible scenarios for the reform of Luxembourg's pension system. The document was presented on 3 April and marks the next stage in the debate on the future of the so-called first pillar, the state pension on which most of the country's salaried workers rely.

As economist Muriel Bouchet, author of the study, emphasised, "the longer we put off reform, the tougher it will be in the future". It is estimated that if we start reform in 20 years, adjustments will have to double or triple. Social Protection Minister Martine Deprez has already said: "It is not possible to leave things as they are."

Squirrel Scenario: saving and saving money

The toughest path offers strict financial discipline - hence the name associated with hoarding. Among the key measures:

• The cancellation or reduction of the annual supplement (€980) for high-income pensioners;
• revision of the indexation mechanism: the linkage of pensions to wage growth will be weakened;
• transition to the "50+1" scheme, in which the share of the fixed part of the pension will increase and the share calculated on the basis of earnings will decrease;
• an increase in long-term care insurance premiums instead of a general increase in social contributions;
• shifting CNAP's administrative costs to the state budget.

Effect: the elderly with low pensions (around €2,500) will keep their purchasing power growing. And for recipients of €9,000 and above, the pension will decrease in real terms. All this is to preserve pension reserves to cover 2-4 years of payments.

The Social Scenario: Justice First and Foremost

The alternative to Squirrel is a scenario with a social defence bias. It involves:

• Maintaining the supplementary payments (€980) for pensioners with minimum incomes;
• increasing the minimum pension for full service by 10% (to approximately €2,530);
• The abolition of the contribution ceiling (€13,000), which would oblige high earners to make proportional contributions on their full income.

This option is particularly aimed at eliminating the gender gap in pensions: the majority of recipients of minimum pensions are women. Higher pensions would grow more slowly or even be reduced. As Boucher noted, "this approach overturns the logic of the previous one."

Coming of age scenario: working longer hours

In Luxembourg, pensioners spend an average of 25 years in retirement - one of the highest rates in the EU. This scenario suggests:

• gradual increase of the retirement age;
• increase in the length of service required for retirement;
• introducing a "longevity factor" so that pensions do not grow faster than the system can afford;
• flexible transition to retirement: partial withdrawal, deferred withdrawal bonuses, reduced employment in the latter stages of the career.

Advantage: pensions will be higher due to the additional length of service, while the system will remain balanced. Problem: This contradicts the current position of the government, which has promised not to raise the retirement age above 65.

4. Autopilot scenario: mechanics without politics

The most "technical" way: set up an automatic system to adjust contributions and payments depending on the budget balance. If there is a deficit, the correction is triggered; if there is a surplus, the system "sleeps".

Minus: without policy intervention, pensions could fall up to 20 per cent below current projections by 2050. This option guarantees long-term financial sustainability but needs political buffers to mitigate negative effects.