Pensions in Luxembourg

Luxembourg is the 7th best country for retirement security in 2022, according to a Naxis study of 44 countries. 

There are three types of pension in Luxembourg – a public state pension, a company pension, and a personal pension. The Caisse Nationale d’Assurance Pension (CNAP) manages the public state pension.

If you are a foreign resident who has paid into a state pension in one or more EU countries, it is possible to combine your state pensions. You can find out more in this article. 

For those from outside the EU this may also be possible if there is a bilateral agreement with your country of nationality.

For now, here's a look at what's available in Luxembourg. 

Public state pension

If you pay social security contributions on a monthly basis, then some of these contributions (8% from you, and a further 8% each from your employer and the state) will be put towards your state pension. Earnings subject to contributions cannot exceed five times the minimum social wage, so approximately €125,000.

What you get will depend on the number of years you have made contributions before you reach the age of 65 years (the official national retirement age in Luxembourg).

Who can claim a Luxembourg state pension?

Anyone who has contributed social security towards their pension for 10 years or 120 months is entitled to a pension. A full pension is only possible if you have contributed for 40 years (or 480 months).

If you contributed for less than 120 months or your contributions were very low (self-employed independents on incomes lower than the social minimum wage for example), you can apply to have your social security contributions re-imbursed, or combined with contributions to state pensions made in another EU country.

You can also include periods you were not able to contribute, such as the years you studied from the ages of 18 to 27 or where you took time off for childcare, or injury through work. This includes sickness, time on unemployment benefit, apprenticeships, charity work, and certain sporting activities.

How much do you get?

The maximum monthly pension payment (2022) cannot exceed €9,422.19, and the minimum is €2,035.19 if you have contributed for 40 years. However, of those currently in receipt of a pension in Luxembourg, approximately one third get a full pension, the rest a partial one. 

On average, those on a full pension receive €3,900, whilst those on a partial pension (many of whom receive other payments either from another provision or from working in another country) receive on average €1,280 from the Luxembourg state.  

Pension payments are indexed year on year to reflect the cost of living. From 1 January 2023, they were adjusted upwards by 2.2% in line with inflation increases and changes to salaries. 

Mandatory insurance is paid in your monthly social security contributions. Equivalent insurance periods allow you to make up your 10-year or forty-year period, particularly if you want to retire early at say 60 years. This would apply to those who were studying until 27 years, raising a child aged up to 6 years (or 18 years if that child has mental or physical disabilities), care workers, or those on disability benefits.

You can purchase insurance retroactively if you have interruptions in your mandatory contributions. You must have accrued 12 months of mandatory contributions and not be over 65 years or have a personal pension. You must also live within the EU when you submit your application.

The pension is made up of a flat rate and a proportional one. It will also depend on the length of your career, and your salary, with a contributions ceiling of five times the minimum social wage.

The flat rate element is granted on the length of your insurance contributions regardless of income. The proportional element is based on the professional taxable income you paid over your working life.

Pensions are paid one month in advance and if you die, your pension will stop at the end of the month of your death.

How to apply

You must send your application to the CNAP a few months before you plan to retire. Your request will be accepted or rejected, although you can appeal.

If you have state pensions in other EU countries or countries with a bilateral agreement on pensions with Luxembourg, you should apply up to six months before you plan to retire, to allow time for the relevant departments to communicate and finalise your payments.

All CNAP forms relating to pensions can be found here.

Early retirement

In certain circumstances you can retire at 57 years or at 60 years. To retire at 57 years you must have paid at least 480 months of compulsory insurance. To retire at 60 years you must have paid at least 120 months of compulsory insurance. In both instances this can include continuous voluntary insurance, optional insurance, retroactive purchases (to cover times when you did not work, say due to childcare), or additional periods (where you were studying and under the age of 27 years). Periods you worked in another state are not kept on record by CNAP so you must include these with your submission form.

If you retire before 65 years but continue to work, your pension entitlements may be affected. There are a number of scenarios depending on whether your work is full time or part time, salaried or unsalaried.

You can use this pension calculator from the Chambre des Salaries Luxembourg (CSL) to see how your pension might be affected. BIL also has a useful article highlighting the impact, in various scenarios, when someone chooses to work beyond retirement.

Survivors' pension

If your spouse or legal partner dies, you could qualify as a survivor. You must have been married/ legally partnered for at least a year, and your spouse should not have been receiving an old age or invalidity pension when you married. This can also apply to divorced spouses if they have not remarried, and to orphans.

Survivors receive the following:

Spouses/legal partners will get the entire flat rate and any special flat rate amounts, and ¾ of the proportional rate and any special proportional rate amounts. Orphans will receive 1/3 the flat rate amount and ¼ of the proportional rate (with the same figure applied to special rates in both categories).

You can find out more on applying for a survivor's pension here. 

Company pension

You and your employer may also pay into a company pension, where your contributions will be tax free. These pensions can usually be claimed between the ages of 60 to 65 years, and pension plans often include death in service benefits.

There are three types of pension fund for company pensions in Luxembourg:

1.       SEPCAV or Pensions Savings Company with Variable Capital is similar in structure to an investment trust. It requires a minimum capital of €1 million within the first two years of set up. Members are shareholders and own a set number of shares, and benefits are paid as a single lump sum.

2.       ASSEPs or Pension Savings Associations, usually non-profit making. They can be used as defined benefit or defined contribution schemes or a hybrid. Benefits can be paid as a lump sum or annuity or a mix of both.

Both SEPCAV and ASSEP vehicles are supervised by the CSSF or Commission de Surveillance du Secteur Financier which regulates the banking and investment industry in Luxembourg, and there are no restrictions regarding investment regulations.

3.       ASBL – these tend to be set up by larger companies wishing to establish their own pension fund. The sponsoring company is required to guarantee the solvability and liquidity of the pension fund at any given time. ASBLs are supervised by the CAA or Commissariat aux Assurances, the Luxembourg insurance regulator. Schemes can be defined benefit or defined contribution.

Personal pension

This is essentially either a savings or investment account with a bank, and you cannot access the money until you retire. Your employer and the government do not contribute.

On retirement you can take up to 50% in a lump sum and the rest in monthly payments. Lump sum payments from personal pensions are considered extraordinary income and are taxable at half the normal rate you pay.

Since 2016, you can claim a reduction in your taxable income for pension contributions of up to €3,200, regardless of age. However the scheme you take must be for a minimum of 10 years and must mature when you are aged between 60-75 years old.

For more information on pensions in Luxembourg visit the CNAP website.

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