IMF Report Highlights Luxembourg's Pension Strengths and Urgent Reform Needs

IMF Assesses Luxembourg's Pension System

The International Monetary Fund (IMF) has released a Technical Assistance Report examining Luxembourg's pension projections, concluding that while the Grand Duchy demonstrates strong short-term forecasting capabilities, it faces difficult reform choices to ensure long-term sustainability. The report, titled 'Pension Projection Assessment,' was published on December 11, 2025.

Robust Short-Term Projections Noted

The IMF's assessment highlights the reliability of Luxembourg's short- and medium-term pension forecasts. Since 2016, one-year-ahead projections of the pension fund balance have shown an average deviation of just 0.04 percent of GDP from actual outcomes. This accuracy was maintained even during periods of significant economic disruption, such as the COVID-19 pandemic and the inflation surge following Russia's invasion of Ukraine, which affected pension systems across Europe. The report was prepared by the IMF's Fiscal Affairs Department in collaboration with Luxembourg's General Inspectorate of Social Security (IGSS) and the national statistical institute STATEC.

Long-Term Sustainability Concerns Emerge

Despite the short-term strengths, the IMF report underscores significant challenges to the long-term financial health of Luxembourg's pension system. Projections indicate that pension expenditures are set to surpass contributions within the next decade. Consequently, pension reserves are expected to fall below the statutory minimum in the late 2030s and could be entirely depleted around the mid-2040s. These long-term pressures are primarily attributed to evolving demographic trends and assumptions about employment growth.

Urgent Reforms Recommended

To address these impending challenges, the IMF has put forth several key recommendations, emphasizing the need for early and transparent action. The proposed reforms include:

• Raising the effective retirement age.
• Phasing out incentives that encourage early retirement.
• Aligning the retirement age with increasing life expectancy.

The IMF also suggested that increasing social contribution rates could be 'part of the solution,' but cautioned that careful analysis is needed to assess potential negative impacts, particularly on labor market participation. The report describes Luxembourg's current pensions as 'generous,' noting their high replacement rate relative to individuals' income during their working years. The fundamental finding is that reforms are unavoidable to secure the fiscal sustainability of the pension system.