A study on the IMF’s December 2025 Technical Assistance Report on Luxembourg’s pension projections offers a detailed examination of how reliably the country has been forecasting the financial future of its public pension system. Prepared by the International Monetary Fund’s Fiscal Affairs Department in cooperation with Luxembourg’s General Inspectorate of Social Security (IGSS), the national statistical institute STATEC, and within the EU framework coordinated by the Ageing Working Group (AWG), the report reflects a collaborative, evidence-based effort to assess pension sustainability. Commissioned by the Luxembourg authorities, it combines budget data, actuarial modeling, and international benchmarking to evaluate both short-term accuracy and long-term risks.
The IMF finds that Luxembourg’s short- and medium-term pension projections have performed well by international standards. Since 2016, one-year-ahead projections of the pension fund balance have deviated from actual outcomes by an average of just 0.04 percent of GDP. Forecast errors widened during exceptional shocks, notably the COVID-19 pandemic and the inflation surge following Russia’s invasion of Ukraine, but these disruptions affected pension systems across Europe. Overall, the IMF concludes that Luxembourg’s forecasting framework has remained robust, even during periods of extreme uncertainty, and continues to provide a credible basis for fiscal planning.
Revenue forecasts as the main source of error
Most projection errors stem from the revenue side rather than from pension spending. The report highlights a persistent underestimation of the average real contribution per employee, particularly during the high-inflation years of 2022 and 2023. This reflects the structural difficulty of forecasting wages and contributions in Luxembourg’s system, where wages, pensions, and the minimum wage are automatically indexed to inflation. Errors in predicting the number of contributors also played a role during the pandemic, when cross-border employment became unusually volatile. By contrast, expenditure forecasts were comparatively stable, with overestimations of pensioner numbers often offset by underestimations of average pension levels.
When compared with Germany, France, and Belgium, Luxembourg’s pension projections perform at least as well as those of its peers. Overall balance forecasts are less biased than Germany’s and broadly comparable to France’s. However, the IMF stresses that Luxembourg’s strong indexation mechanisms make its projections more sensitive to inflation surprises than systems where wage and pension adjustments are delayed or only partial. This institutional feature explains why forecast deviations can appear larger during inflationary episodes, even when the underlying methodology is sound.
Long-term outlook: stable signals, rising pressure
The report’s long-term analysis, based on a customized ILO cohort model implemented in the LIAM2 environment, shows that while projection results have shifted across vintages, the timing of key stress points has remained relatively stable. Estimates of when pension reserves will be fully depleted have moved by only two years since 2016, while the trigger for legally mandated contribution increases has consistently been placed in the late 2030s. Recent updates bring these milestones slightly closer, largely due to weaker employment growth assumptions rather than methodological pessimism. The IMF also finds that conservative assumptions about investment returns have only a limited effect on these outcomes; even higher returns would delay critical events by just a few years.
Reform unavoidable amid labor-market uncertainty
Looking ahead, the IMF identifies employment growth as the most important uncertainty shaping pension sustainability. If recent weak labor-market performance proves structural, key pension stress points could occur earlier than currently projected. The report also flags artificial intelligence as a growing factor, noting that while AI could boost productivity and revenues, it may also fragment careers and weaken contribution histories. The IMF recommends integrating such scenarios into future projections and, over time, complementing macro models with micro-simulation tools to better capture distributional effects. In its overall assessment, the IMF concludes that Luxembourg’s pension projections are technically strong and internationally credible, but that demographic pressures make reform unavoidable. Given the long lead times required for pension changes, the report strongly advises early, transparent action to secure long-term sustainability.
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