In 2022, the National Pension Insurance Fund (CNAP) paid out an average of 208,212 pensions, an increase of 3.6% compared with 2021. The average number of insured contributors was 488,361 (+3.1%), giving a load factor--the ratio of pensioners to contributors--of 42.6, compared with 42.4 in 2021. And so, for the first time in history, the increase in the number of contributors was less than the increase in the number of pensioners.

This symbolic overshoot has not yet had any impact on revenue. Revenue still exceeded expenditure on benefits. The surplus reached €969.9m in 2022 (a surplus of 14.5%). This enabled the CNAP to transfer €545.6m to Luxembourg’s main public pension plan, the FDC. But just because there was a surplus does not mean that the 2022 pension insurance scheme will show a surplus. In 2022, the balance was negative, -€2.542bn. This was due to a devaluation of the reserve funds, which were only able to contribute €7m to revenue, compared with €2.629bn in 2021. That just goes to show that a pay-as-you-go scheme can also be subject to financial upheaval.

Who are the pensioners?

What does the law say? At the statutory retirement age of 65, insured persons are entitled to an old-age pension provided they have completed at least 120 months of effective pension insurance periods. An early old-age pension may be granted from the age of 57 subject to conditions, including 480 months of contributions or equivalent.

In practice, people retire in Luxembourg between the ages of .

In 2022, the average age of new pensioners was 61.3.

€2,398.20 average pension

In 2022, the CNAP paid out €5.615bn in pensions. By way of comparison, current expenditure on social protection reached €17.068bn (+8.1% on 2021). Nearly half, 48%, of this sum was funded by the state. Old-age/survivor benefits (39.9%) and sickness benefits (28.1%) accounted for 68% of expenditure. Old age/survivors’ benefits represent 8.6% of GDP and sickness benefits 6.1%.

The amount of a pension depends essentially on the length of contributions and the total base accumulated during a person's working life. At the end of 2022, the average amount of an old-age pension paid out was €2,398.20 a month. The average amount of pensions based on an exclusively Luxembourg career--currently 40.9% of pensions paid by the main pension insurance scheme--comes to €3,235.80, while the average amount for a ‘migratory’ career--including working contributions in at least two countries--comes to just €1,438.80. This amount may be supplemented by partial pensions from other countries.

According to data from the national statistics bureau Statec, for November 2022, the budget required by people aged 65 or over who are retired, independent, in good health and living at home is €3,471 for a two-person household and €2,551 for a person living alone.

50.2% of pensions paid to non-resident beneficiaries

All analysts of Luxembourg’s economic ecosystem agree: the 214,000 cross-border commuters and resident foreigners (47.4% of the population) contribute to the country’s prosperity. And to the financing of its social system. They contribute 43.8% to the pension insurance scheme, 35.7% to the sickness and maternity insurance scheme, 34.4% to the nursing care insurance scheme and 24.1% to the accident insurance scheme.

Would retirement be less painful if retirees live elsewhere? If the question comes down to whether, once their working life is over, retirees leave Luxembourg for sunnier climates, the answer is mixed. For the time being.

At the end of December 2022, 50.2% of pensions were paid to non-resident beneficiaries. “In 1995, this rate represented less than a quarter of all pensions, rising to over a third by 2000. In December 2022, 103,321 pensions were paid to beneficiaries living in a European Union country and 2,858 to beneficiaries living in some 80 countries in the rest of the world”, the IGSS said.

However, in terms of volume, only 30.7% of cash benefits under the pension insurance scheme are exported abroad. That is a “low” rate, according to the IGSS.

The IGSS report stated: “There are two main reasons for this situation: the number and the amount of pensions exported. Over the last 50 years, economic growth has outstripped demographic growth, and the shortfall has only been made up by sustained immigration and, later, by the use of non-resident workers. A significant proportion of immigrants settled in Luxembourg. Those who returned to their home countries have more often had partial careers in Luxembourg and therefore benefit from reduced pension insurance benefits, as these are calculated on the basis of the period of affiliation. The still recent influx into the labour market of a relatively young non-resident working population means that many of them are not yet entitled to pension benefits.”

Originally published in French by and translated for Delano