The Southampton left back received a shock call up to England's World Cup squad, but the new Nottingham Forest boss believes the 18-year-old would benefit from regular football.
The 18-year-old was selected as backup to Leighton Baines in the left back role for Roy Hodgson's final party of 23 ahead of the more experienced Ashley Cole, who promptly retired from the international game in the wake of the announcement.
With the Southampton starlet arguably unlikely to feature in Brazil unless Baines suffers injury or suspension, Pearce, who won 78 caps for England at left back, believes Cole would have been a more logical choice.
"Luke should have been playing in the Under-21 qualifier against Wales and then going on to the (Under-20) Toulon tournament," he told The Independent. "You'd be giving a young player tournament experience. If he comes back from Brazil having not featured, it's a wasted tournament for him.
"I would have taken Ashley Cole to fight out the left back position with Leighton Baines."
Fabio Capello took no teenage players to South Africa 2010, though both Aaron Lennon and Theo Walcott were included as youngsters in Sven-Goran Eriksson's 2006 squad.
In an eight-year international career, Lennon has accrued just 21 caps, while Walcott was snubbed for South Africa, before missing this year's tournament through injury.