The 2025 annual reports of the National Pension Insurance Fund (CNAP) and Luxembourg’s pension reserve fund, the Fonds de compensation (FDC), published on 15 July, presented the same pension finances from different sides. The FDC reported net investment income of €1.25bn and a net return of 4.25%, while the CNAP said the balance between contributions and benefits was weakening even though the reserve had increased.

The €32.05bn reserve was equal to 4.24 times the benefits paid over one year. With annual pension payments running at about €7.6bn, that amounted to roughly four years and three months of benefits if no further money entered the system and spending remained unchanged.

“We are not a traditional pension fund in the sense that we do not live off our return,” Alain Reuter, president of both institutions, told Paperjam in January 2025.

More money, less cover

The FDC managed €30.65bn of the reserve at the end of 2025, while about €1.4bn remained with the CNAP. Of the amount managed by the FDC, €28.4bn was held in its main investment fund, which spreads the money across shares, bonds and other financial assets; the rest was held directly in property, loans, cash and other holdings.

The investment fund produced a net return of 4.45% in 2025, 0.24 percentage points below a reference portfolio based on the FDC’s long-term target mix of investments. Across all the assets managed by the FDC, including those held outside the investment fund, the net return was 4.25%.

The FDC said the weaker dollar reduced the euro value of its US investments because assets priced in dollars were worth less when converted back into euros. Even so, the total reserve rose by €1.38bn between the end of 2024 and the end of 2025.

Pension costs rose faster. At the end of 2023, the reserve stood at €27.39bn and was equal to 4.25 years of benefits; by the end of 2025, it had grown by almost €4.7bn but annual pension payments had increased slightly faster, leaving coverage at 4.24 years.

Current income nears current costs

Contributions collected on current earnings would have needed to equal 23.71% of the earnings base to cover pension payments in 2025, up from 23.11% a year earlier. The statutory contribution rate was 24%, split equally between employees, employers and the government, leaving a margin of only 0.29 percentage points between the rate collected and the rate needed to pay current pensions.

The comparison excludes the earlier surpluses held in reserve and the income earned by investing them. It therefore shows whether current contributions alone are keeping pace with current pension costs.

The narrow margin did not mean the reserve was close to running out. It meant less contribution income was left after current pensions had been paid, weakening the flow of new money available to support the reserve.

The balance between contributors and pension beneficiaries also deteriorated. There were just over 46 beneficiaries for every 100 contributors in 2025, compared with about 45 a year earlier, while the average number of pensions in payment rose by 4.5% to 240,185.

At the end of December, the CNAP was paying 243,427 pensions, and payments over the full year reached €7.55bn. More than half of the pensions recorded in December were paid to recipients living outside Luxembourg, while pension records combining contribution periods in Luxembourg and abroad accounted for 61.7% of the total.

Higher returns would buy little time

The FDC also examined whether taking more investment risk could materially improve the pension system’s long-term outlook. Its projections indicated that the reserve would fall below the legal minimum around 2041.

Luxembourg requires the reserve to remain equal to at least one and a half years of pension spending. Crossing that threshold would therefore leave less than 18 months of benefits in reserve.

The review considered increasing the proportion invested in shares, which can produce higher returns over long periods but also expose the reserve to larger losses when markets fall. The FDC found that taking the additional risk could postpone the breach of the minimum by no more than one year and decided against increasing its exposure.

The review said investment returns had only a limited effect on the system’s long-term financial health. The decisive factors were the amount collected in contributions, the pace at which pension spending increased and continued growth in the working population.

Stronger investment returns could increase the reserve and delay the point at which it fell below the legal minimum. They could not by themselves reverse the deterioration in the balance between current contribution income and pension costs.

Reform buys some headroom

Parliament increased the combined pension contribution rate from 24% to 25.5% from 1 January 2026, with employees, employers and the government now each contributing 8.5%. Applied to the same earnings and pension costs as in 2025, the higher rate would have stood 1.79 percentage points above the rate needed to cover current benefits.

That comparison does not establish what the margin will be in 2026 because pension spending, employment and earnings will all have changed. The annual reports cover 2025 and cannot yet show the effect of the higher contribution rate.

The reform also gradually lengthened the contribution record required for some people seeking an early pension from the age of 60. It introduced a progressive pension allowing eligible workers, with their employer’s agreement, to reduce their hours and draw part of an early pension.

The annual reports cover 2025 and cannot yet show the effect of the higher contribution rate. What they do show is that Luxembourg entered the reform with a record reserve, but with current pension costs moving closer to the contribution income collected to pay them.