The increase in life expectancy, both past and anticipated, is one of the main causes of the long-term unsustainability of the pension system. Indexation of the retirement age is one of the alternatives for taking this into account, without calling social gains into question.

Increasing the official retirement age is one of the red lines decided by the government for the very likely future pension reform, as it prefers to aim for an increase in the effective retirement age without changing the legal age of 65. This is understandable given that the statutory retirement age is close to that of other European countries, while the effective retirement age is in stark contrast: 60.5 years of age for men and 58.4 for women in 2022, compared with 62.5 and 62.3 respectively in the European Union. The red line is also being drawn because the measure is not considered very popular, with the French example illustrating just how much a delay in the retirement age can make people tense up.

The decision to increase the retirement age, which in Germany is illustrated by a planned rise from 66 years and two months at present to 67 years in 2031, is the result of changes in life expectancy at the age of 60. In Luxembourg, this has increased since the last reform in 2012, by 1.4 years for men and 1.1 for women, to reach 23.3 and 26.5 years respectively. Coupled with a relatively early effective retirement age, pensioners can currently expect to enjoy their retirement for 25 years in Luxembourg, the most favourable situation in the European Union.

And medical advances are expected to continue to increase the length of retirement, with the IGSS anticipating an average pension duration reaching 28 years in 2050 and 29 years in 2070. This obvious advance would be one of the main reasons for the long-term financial unsustainability of the Luxembourg pension system, as it plays a part in the imbalance between the number of contributors and the number of pensioners.

To address this future imbalance, rather than postponing the retirement age, it would be possible to index the various statutory retirement ages, early retirement at 57 and 60, and the official retirement age of 65, to changes in life expectancy at age 60. In this way, an increase in the retirement age would only take place in the real case of an increase in the number of years of pensionable life, and with a view to rebalancing the length of working life and life in retirement. This measure, which is already in place in Sweden, the Netherlands and Denmark, would have the effect of keeping the average pension duration at around 25 years by 2050. However, it has the great merit of making it possible, coupled with other elements of reform, to preserve the purchasing power of pensioners much more than the savings measures that could be envisaged without increasing the retirement age.

This indexation should be accompanied by measures to encourage active ageing, with the introduction of a pension bonus for people who postpone their retirement, and policies to encourage the employability of older people, focusing on their training, unsuitable jobs or arduous work. Indexation to life expectancy at age 60 is not a 'miracle' solution for securing the future of the general pension scheme, but it is an avenue worth considering, and it would be useful to simulate its financial effects, both macro-economically and for pensioners, as for other possible measures. This is how Idea will present not one but four complete reforms of the Luxembourg pension system on 3 April, with marked philosophical and political choices.

“Pension reform: what’s to be done? “ on Thursday 3 April

” conference will take place in two parts. The Fondation Idea will first reveal and decipher its proposals for reform to ensure the long-term sustainability of our pension system. Second, the roundtable “In June, time for reform?” will provide an opportunity to debate whether or not reform is necessary, the major issues surrounding such a move and different visions for the future of the Luxembourg pensions system.

The event will take place as follows:

Introductory speech by Michel Wurth, chairman of Idea

Speech by Martine Deprez (CSV), minister for health and social security

Presentation of the four Idea reform scenarios by Muriel Bouchet, associate expert and former director of the think tank

The roundtable “In June, time for reforms? ” will take place with the participation of:

Djuna Bernard, déi Gréng MP and member of the health and social security committee

Marc Wagener, director of the Union des entreprises luxembourgeoises (UEL)

Sylvain Hoffmann, director of Chamber of Employees

Vincent Hein, director of Idea

The conference will be moderated by Caroline Mart, head of news at RTL Télé Lëtzebuerg.

When? Thursday 3 April, from 5pm to 7pm, followed by a cocktail reception

Where? Centre de conférences of the Chamber of Commerce, 7 rue Alcide de Gasperi, Luxembourg

Click here to register: ”

*Jean-Baptiste Nivet is senior economist at the Fondation Idea

This article was originally published in .