Why a pension reform now?
Luxembourg’s pension system has long been considered one of the most generous and robust in Europe. Built on a strong pay-as-you-go model, supported by a sizeable reserve fund and sustained by a growing workforce, it has for decades ensured high replacement rates and early retirement options.
However, demographic realities and long-term financial projections have made clear that the current equilibrium cannot be maintained indefinitely. According to projections by the Inspection générale de la sécurité sociale (IGSS), pension expenditure will exceed contribution revenues as early as 2026, with the reserve fund expected to fall below the legal threshold in the following decades if no corrective action is taken.
Against this background, the Luxembourg legislator has adopted a targeted and incremental reform, effective as from 1 January 2026, following extensive consultations with social partners and citizens, notably through the “Schwätz mat!” initiative.
Rather than a structural overhaul, the reform aims to adjust key parameters of the system, preserve intergenerational fairness and encourage longer participation in working life while maintaining the legal retirement age at 65.
Below we summarise the reform in five key points, followed by its practical implications for employers and HR departments.
1. Increase in the pension contribution rate: shared effort until 2032
The most visible measure of the reform is the increase in the global pension contribution rate from 24% to 25.5%, effective as from 1 January 2026.
This increase of 8.5% applies across the board and is shared equally between the three contributors: Employees, Employers and State.
For self-employed persons, the total contribution rate is also set at 25.5%.
The new rate is fixed until 2032, i.e. until the end of the current coverage period, and constitutes an exceptional derogation from the automatic adjustment mechanisms introduced by the 2012 pension reform.
The legislator deliberately opted for a moderate increase in contributions rather than an immediate reduction of benefits or an increase in the statutory retirement age, reflecting a political choice in favour of system stability and social cohesion.
2. Introducing flexibility at the end of working life
One of the most innovative aspects of the reform is the introduction of a gradual pension scheme (pension progressive), inspired by existing mechanisms in the public sector.
Under the new regime, an employee who:
- has acquired 40 years of insurance periods, and
- is eligible for early retirement,
may, with the employer’s agreement, reduce their working time and receive a partial pension in parallel.
This mechanism allows for a progressive transition into retirement, continued participation in working life and the continued accrual of pension rights during the part-time activity.
From a labour law perspective, gradual retirement requires:
- an amendment to the employment contract;
- a careful coordination with payroll and social security reporting; and
- an anticipation of organisational impacts for employers.
Gradual retirement can become a valuable workforce management tool, particularly in sectors facing skills shortages or knowledge-transfer challenges. However, employers should anticipate its operational and financial implications early on.
3. Early retirement at 60: gradual extension of required insurance period
The conditions for early retirement at 60 will be gradually tightened. Between 2026 and 2030, the required insurance record will be extended by a total of eight months, according to the following timeline:
- 2026: +1 month
- 2027: +2 months
- 2028: +4 months
- 2029: +6 months
- 2030 and thereafter: +8 months
This measure aims to progressively align the effective retirement age with the legal retirement age, without abrupt changes.
However, this extension does not apply to the:
- early retirement at 57 years with 40 years of compulsory insurance;
- early retirement for shift work or night work;
- early retirement due to corporate restructuring;
- persons retiring at 65; and
- persons already receiving a pension.
4. More flexible recognition of study years
Another important adjustment concerns the recognition of study years in the pension insurance record.
Until now, study periods could be recognised only if completed before the age of 27. As from 1 January 2026, this age limit is abolished.
Up to nine years of study may be recognised:
- regardless of when they occur during the professional life;
- provided they are not already covered by another pension scheme.
This reform reflects modern, non-linear career paths and lifelong learning realities. This change may be particularly relevant for professionals who resumed studies later in life or changed careers and it may positively affect pension eligibility calculations.
5. What does not change: legal retirement age and acquired rights
Despite public debate and speculation, several fundamental pillars of the Luxembourg pension system remain unchanged:
- legal retirement age remains at 65;
- current pensioners are not affected;
- existing pensions are preserved;
- the allocation de fin d’année is maintained, due to the exceptional fixing of the contribution rate at 25.5%.
Practical implications for employers and HR departments
Although the reform primarily targets the pension system, it has direct operational consequences for employers and HR teams, in particular:
- the adjustment of payroll costs following the contribution rate increase;
- the management of gradual retirement requests and contractual amendments;
- an anticipation of longer career paths for employees approaching early retirement;
- a coordination between employment law, social security and pension planning;
- an internal communication and individual guidance for senior employees.
Employers are encouraged to proactively review their HR policies, employment contracts and workforce planning strategies in light of the reform.
We regularly assist clients with:
- pension-related employment structuring;
- gradual retirement arrangements;
- dispute prevention and litigation in social security matters.
For those navigating the legal and practical implications of the pension reform, our Employment, Compensation and Benefits department remains available to assist.
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