Luxembourg: Technical Assistance Report-Pension Projection Assessment

This 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. Short-term projections have shown modest deviations—on average 0.04 percent of GDP over the past decade—with larger gaps 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. The underestimation of average real contributions per employee has been one key driver of deviations. 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 to 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. Further improvements—especially refining employment and wage inputs, reassessing return assumptions, incorporating micro-simulations, and enhancing communication—would help to maintain the high level of accuracy and transparency. Proposed model refinements do not alter the fundamental finding that reforms are needed to secure fiscal sustainability of the pension system.