Foreigners feel ‘ignored’ in Luxembourg pension reform

Foreigners working in Luxembourg say they have felt ignored and marginalised in the pension reform debate despite being crucials contributors to the system.

After long-drawn-out negotiations with labour unions and employers, the Luxembourg government at the start of September announced changes to the pension system, including raising the effective retirement age by eight months over a five-year period and increasing social security contributions for workers from 24% to 25.5% of income, split equally between employee, employer and the state.

“People will be shocked when they realise their January pay check will actually be smaller,” said a British banker, who asked not to be named for fear of negative repercussions in the workplace. “There’s been no campaign to really explain this in plain language.”

The government only after the 1.5 percentage point increase was announced clarified that this included a 0.5 point increase for employees.

The reform – less ambitious than what the government initially set out to do – is due to give the pension fund an additional four years before it is depleted, ministers said, moving that deadline from 2045 to 2049 and kicking the problem down the road to be tackled again by one of the next administrations.

“I did not know about the changes or that the pension fund will run dry in some years,” the banker said.

The Schwätz mat platform introduced by the government to take suggestions from the population on the pension reform was only available in German and French © Photo credit: Schwätzmat.lu

“I did not know about the changes or that the pension fund will run dry in some years,” the banker said.

An online platform by the government to take suggestions from the general public on pension reform was launched in German and French only. Schwätz mat (which roughly translates to ‘have your say’) logged 9,000 unique visitors and collected 2,000 suggestions. But interviewees for this article weren’t even aware of its existence and feel largely overlooked in the debate.

“It is very clear that the circumstances of expats are not being taken into account for the decision-making. Even when we are being asked to pay more into the system, we don’t have a seat at the table to ensure that our rights and circumstances are also considered,” said an Indian professional at a multinational company.

An expat from the US living and working in Luxembourg for six years said that even though foreign workers are a very important cog in the Luxembourg pensions wheel, they don’t have a say in how the system works.

“Consider this. Luxembourg’s extremely generous pensions will collapse if expats were to somehow stop paying into the system,” he said. “Yet expats don’t have a voice. Is it in the interest of expats to increase contribution rates? Absolutely not. But no one has bothered to ask us and we are not organised enough to raise a voice.”

The ministry of health and social security did not respond to a request for comment.

While worker interests were represented in the labour talks by trade unions LCGB and OGBL, more than two-thirds of foreign workers aren’t unionised, according to Statec data. White collar workers – including in Luxembourg’s large and international financial centre – are also less likely to be union members.

Three quarters of Luxembourg’s workforce are non-nationals, an April Statec report said. Nearly half (47%) of the 490,000 people employed in Luxembourg are cross-border workers.

Amcham’s open letter

In an open letter addressed to the prime minister, members of parliament and trade unions, Paul Schonenberg, chairman and CEO of the American Chamber of Commerce in Luxembourg, expressed the frustration of the international business and expat community over their exclusion from the pension debate.

Expats and other workers will be impacted by pension reform. The outcome will be fairer if their unique circumstances are considered

Paul Schonenberg

Chairman and CEO of the American Chamber of Commerce in Luxembourg

“We are saddened that the currently ongoing dialogue about pension reform does not include any focused understanding of the special and unique circumstances which impact our constituency and related, unintentionally marginalised groups outside of the mainstream Luxembourg citizen working population,” Schonenberg wrote, stressing that his intervention was not a criticism but a plea for justice and fair treatment.

Noting that the Chamber of Deputies consists entirely of Luxembourg citizens, he acknowledged that they may not fully perceive the realities facing foreign workers. “Nonetheless, expats and other workers will be impacted by pension reform. The outcome will be fairer if their unique circumstances are considered,” he said.

Foreigners – but also parents who took career breaks and accompanying spouses – are more likely to have irregular or limited participation in Luxembourg’s social security scheme, Schonenberg continued.

In a open letter to the government, Paul Schonenberg, CEO of Amcham, said that expats are being overlooked in the pension reform process and urged their circumstances be taken into account © Photo credit: Gilles Kayser

Foreigners – but also parents who took career breaks and accompanying spouses – are more likely to have irregular or limited participation in Luxembourg’s social security scheme, Schonenberg continued.

Six out of ten employees in Luxembourg have worked in more than one country, with only 40% of people receiving their pension after having spent their whole career in the country, the National Pension Insurance Fund’s (CNAP) last annual report showed.

Schonenberg proposed allowing those who have not achieved 40 years of contributions to voluntarily delay their pensions while continuing to contribute, thereby increasing old-age security without negatively affecting other beneficiaries.

“This simple adjustment, done on a purely voluntary basis, will allow those who have insufficient tier one pension benefits caused by limited working years to build for themselves a greater degree of old age security to live in dignity without negatively impacting the benefit entitlements of the rest of the Luxembourg population,” the Amcham CEO said.

Under current rules, work contracts automatically expire upon an employee’s 65th birthday, regardless of how long they have worked in Luxembourg. While these forced retirees can seek other jobs, people aged 45-64 make up the biggest group of jobseekers, with job centre Adem not tracking unemployment past that age.

Expats don’t know how it works

Beyond the reform itself, many expats admit they do not understand how Luxembourg’s pension system works.

“No one explains what it means or what it entitles me to. I also worked in the UK and the first day of my job I received a detailed email explaining what my pension contributions are and what I can be entitled to,” said the expat from the UK.

Another question that many expats, particularly those from non-western countries, struggle with is what happens if they don’t pay into the system long enough. Luxembourg law requires at least 10 years of contributions to qualify for a state pension although years worked elsewhere in the EU and a network of other partner countries can count towards that threshold.

“What happens if by the time I turn 65, I have worked five years in Luxembourg, 20 years in India and 15 years somewhere else? What about the money I have paid into the Luxembourg pension system?” asked the expat from India.

According to CNAP’s 2024 annual report, individuals who do not meet the minimum qualifying period can request a refund of their personal contributions, minus the state’s top-up share.

EU/EEA and Swiss workers benefit from EU pension coordination rules, which aggregate contribution periods across member states to meet the 10-year threshold, with each country paying a pro-rated pension.

Mixed EU and non-EU careers are only partially coordinated. Luxembourg has bilateral treaties with 21 countries outside the EU where periods of social security contributions can be added together, the CNAP told the Luxembourg Times. How they are added together varies from country to country, depending on the convention signed.

But even Europeans with secure contribution histories are unsure about their options.

“I’ve only been in Luxembourg three years, so my accrued pension is limited. The increase in contributions and potential rise in retirement age mean I can’t rely solely on the Luxembourg system,” said a Swedish expat who relocated to Luxembourg to follow her partner. “I’ll need to consider supplementary options to maintain a lifestyle similar to Sweden’s system.”

Second pillar pensions underused

In 2023, General Inspectorate of Social Security (IGSS) data showed 913 people received supplementary pension benefits under the second pillar – meaning company-based retirement schemes set up by employers – totalling €44.02 million, mostly in lump-sum payments. By contrast, the general state pension scheme paid €6.39 billion to 223,834 beneficiaries.

The number of companies offering supplementary schemes has stagnated since 2012, IGSS data shows, reflecting structural reluctance outside a few high-margin industries to invest in additional retirement provision.

Only 6.2% of Luxembourg employers offer supplementary pension schemes, though coverage is higher in finance and insurance, where 44.4% of employers offer plans and 56.2% of employees benefit.

Across the economy, just 14.4% of employees have extra coverage, compared with 40-50% on average across the OECD, and 80-90% in countries with mandatory schemes such as the Netherlands, Denmark, Sweden, and Switzerland. Even in neighbouring Belgium, more than 50% of employees have access to an employer-based pension plan.

Interest in supplementary private pensions, the so-called third pillar, seems to be growing, said local insurances, but hard data is limited. Luxembourg-based insurance company Bâloise said they have, “no available data or insights regarding expatriates.”

Competitor La Luxembourgeoise Vie, known as Lalux, noted a general rise in inquiries: “We have received many more requests and have been raising awareness on the subject of pensions since the discussions began a year ago,” said a company spokesperson on behalf of Lalux’s director, Claudia Halmes-Coumont.

A spokesperson for Lalux said the company has seen a general rise in inquiries about pensions © Photo credit: LW archive

Competitor La Luxembourgeoise Vie, known as Lalux, noted a general rise in inquiries: “We have received many more requests and have been raising awareness on the subject of pensions since the discussions began a year ago,” said a company spokesperson on behalf of Lalux’s director, Claudia Halmes-Coumont.

Private third-pillar pensions attracted contributions from about 73,000 households in 2022.

“My employer doesn’t provide any supplementary scheme,” said Ricardo García, a Spanish expat who works at a fund based in the capital. “I’ve taken out a supplementary plan at Axa and invest a significant sum every month. […] It’s about peace of mind. I want to be sure I can retire comfortably, not just survive,” he told the Luxembourg Times. “I’ve seen people in Spain struggle when their pensions weren’t sufficient. I don’t want to take that risk,” he added.

The names and the workplaces of the expats interviewed for this article have been anonymised at their request as interviewees wish to avoid negative ramifications in response to the article.