Background

The following is based on the OECD's and CES' reports and the recent projections by the IGSS:

• The current contribution rate of 24% will be insufficient to cover annual pension payments from 2027 onward.
• The number of retirees is expected to more than triple by 2070.
• The national pension insurance fund (Caisse nationale d'assurance pension) is expected to record annual expenditure exceeding contribution revenues as early as 2026.
• The reserve of the compensation fund (Fonds de compensation) could fall below the statutory minimum threshold (1.5 times annual benefits) by 2038 and be depleted by 2044.
• The age of effective retirement in Luxembourg remains among the lowest in the EU, exacerbating financial strain.

If adopted, the measures are expected to stabilize the system's reserves until around 2050, according to IGSS projections.

Key measures proposed

Increase in contribution rate

• From 1 January 2026, the global pension contribution rate will rise from 24% to 25.5% (split equally among employers, employees and the state (an increase of 0.5% for each)). This adjustment will apply until 2032.
• This measure is intended to balance the system's finances and involve all stakeholders in securing pension funding.

Flexible recognition of study and training periods

• Up to nine years of unpaid study or professional training periods may now be credited toward pension entitlements, reflecting modern career paths and lifelong learning.

Gradual extension of contribution periods for early retirement

• The required insurance period for early retirement at 60 years old will progressively increase from 480 to 488 months by 2030. It will increase by one- month per year in 2026 and 2027, and by two months per year between 2028 and 2030.
• The existing rule allowing early retirement at 57 with 480 months of effective contributions remains unchanged.
• Workers benefiting from "pré-retraite ajustement" or shift/night work preretirement schemes are expressly excluded from the new rule.

Introduction of progressive pension ("pension progressive")

• Employees eligible for early retirement may opt for a progressive pension, allowing part-time work combined with a partial pension.
• The employer and employee must agree on a contract amendment; the pension fund reimburses the employer for the pension portion paid.
• The right to a progressive pension ends – noting that the following cases are not exhaustive – from the day on which the conditions for entitlement to a "pension de vieillesse" (old-age pension) at the age of 65 are met; from the day on which the employee is entitled, upon request, to a "pension de vieillesse anticipée" (old-age pension) or a disability pension; and from the day of the employee's death.

Entry into force

• The reform will apply from 1 January 2026, except for the provisions on the increase of contribution periods, which will enter into force on 1 July 2026 to accommodate pending pension applications.

Tax measures proposed to support pension system sustainability

Draft Bill No. 8640 proposes the following:

• Introduction of a new tax allowance for continued professional activity, designed to encourage individuals to remain professionally active until the statutory retirement age of 65 (Eligible taxpayers would benefit from a reduction in taxable income up to EUR 9,000 per year, capped at EUR 750 per month, even if they are already entitled to a "pension de vieillesse" (old-age pension).)
• Increase in the annual tax deduction ceiling for contributions made under a retirement savings contract, treated as special expenses, from EUR 3,200 to EUR 4,500

Practical implications and next steps

• Employers should prepare for increased pension contributions and consider the impact of progressive pension options on workforce planning.
• Employees will benefit from greater flexibility in crediting study/training periods and new options for gradual retirement.
• HR and payroll teams must update systems to reflect new contribution rates and eligibility rules.

Both draft bills are currently subject to parliamentary debate and may be amended.