Luxembourg: Technical Assistance Report-Pension Projection Assessment
Technical Assistance Reports, December 12, 2025
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Bibliographic details
- Published: December 12, 2025
- Series: Technical Assistance Reports
- DOI: https://doi.org/10.5089/9798229033084.019
Assessment summary
- The report assesses the reliability of Luxembourg’s pension projections and finds that both short- and long-term forecasts generally perform well, supporting sound fiscal planning.
- Proposed model refinements do not alter the fundamental finding that reforms are needed to secure fiscal sustainability of the pension system.
Short-term forecasting performance
- Short-term projections have shown modest deviations—on average 0.04 percent of GDP over the past decade.
- Larger gaps occurred during periods of exceptional uncertainty such as the COVID-19 shock and the inflation surge following Russia’s war in Ukraine.
- Similar forecasting challenges were observed in peer EU countries.
- One key driver of short-term deviations is the underestimation of average real contributions per employee.
Long-term projections and outlook
- Long-term projections have remained broadly robust across vintages, with the timing of key pension fund events shifting only marginally.
- Reserves are still expected to:
- fall below the statutory minimum in the late 2030s, and
- be exhausted around the mid-2040s.
- Variability in long-term outcomes mainly reflects evolving demographic and employment assumptions, which tend to have larger effects in small economies.
Drivers of forecasting variability
- Demographic assumptions.
- Employment assumptions.
- Wage and contribution assumptions (including underestimation of average real contributions per employee).
- Return assumptions for pension fund assets.
- External shocks (examples cited: COVID-19 shock; inflation surge following Russia’s war in Ukraine).
Recommended improvements and model refinements
- Refine employment and wage inputs.
- Reassess return assumptions.
- Incorporate micro-simulations.
- Enhance communication and transparency.
- Adopt a multi-model approach and consider cross-country benchmarking to contextualize forecasting performance.
- The report notes that these improvements would help maintain the high level of accuracy and transparency but do not change the need for reforms to secure fiscal sustainability.