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IPE special report May 2018

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Luxembourg: foreigners key to pension system

LUXEMBOURG – Luxembourg’s public pension system is being kept in balance by cross-border workers, says the Organisation for Economic Cooperation and Development.

“Lower trend growth could have dramatic implications for he sustainability of the general public pension system,” the OECD says in a report.

“While current pension benefits already exceed contributions for residents, the system has nevertheless been kept in balance thanks to the rapid growth in employment, made possible by the availability of cross-border workers, and the associated contributions.”

“Such employment growth in effect forestalls the maturation of the pension system, generating a comfortable cash-flow balance, but also creating ever-growing deferred pension liabilities.”

The OECD says foreign workers perform a “shock-absorber” role in the Luxembourg economy. It says that the replacement rate should be reduced to ensure that the “extremely generous” general pension system remains sustainable.

“Adjustments to the general public pension scheme, preferably by reducing the high replacement rates, will be needed to make the scheme sustainable in the long term.

“The authorities have begun to tackle the early retirement problem, which will help to reduce the scale of the required adjustments to make the general public pension system scheme sustainable but more needs to be done.”

It wants reforms to the disability pension – a key route to premature withdrawal from the labour force – to be aided by a reduction in the early-retirement pension on an actuarial basis in relation to a pension taken at the official retirement age of 65.

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