Pension Sustainability and the Commuter Shift in Luxembourg

Details

Supervisors

Hindriks, Jean

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [120] en sciences économiques, orientation générale, à finalité spécialisée

Abstract

enPopulation ageing poses a significant challenge to pay-as-you-go (PAYG) pension systems throughout the developed world. Luxembourg, however, represents a distinctive case: nearly half of the workforce insured under its general pension scheme consists of cross-border commuters who reside outside the country during both their working lives and retirement. This thesis examines the long-term sustainability of Luxembourg’s pension system and investigates how its financial trajectory is influenced by this unique cross-border workforce structure. To do so, it develops a residence-disaggregated PAYG accounting framework that decomposes the overall balance into resident and non-resident components. This approach enables the formal identification of the commuter shift, the year in which the non-resident balance turns from surplus into deficit. Using data from the General Inspectorate of Social Security (IGSS) and STATEC, and projecting outcomes through 2070, the model indicates that, under current policy settings, the pension scheme enters deficit in 2032. The commuter shift is projected to occur in 2047, after which the deficit continues to widen, reaching approximately €40 billion by 2070. Among the five parametric reforms evaluated, every reform involving a change to the indexation of benefits fully prevents the commuter shift, whereas the duration reform merely delays its onset. The combined reform package reduces the projected 2070 deficit by roughly 84%, although it does not fully restore long-term financial balance.