Luxembourg pension: how much the elderly are paid and how to benefit
Whether approaching retirement or planning for the future, gaining insight into the pension system can help ensure a comfortable and secure retirement. This article provides a comprehensive overview of Luxembourg's pension system, benefits available and the steps for obtaining them.
The Luxembourg pension system is known for its relatively high payouts compared to other European countries. As of January 1, 2024, the minimum pension in Luxembourg for 40 years of contributions is an impressive 2.244,82 euros gross per month.
Types of pensions in Luxembourg
Before diving into the details of eligibility requirements and pension calculations, it is important to understand the different types of pensions available in Luxembourg. The local pension system has three main pillars.
All individuals who work in Luxembourg, whether as employees or self-employed, are covered by the general pension scheme and are affiliated with the Caisse Nationale d'Assurance Pension (CNAP).
Under this system, both the employee and the employer contribute 8% of the employee’s monthly salary to a national old-age pension fund. This compulsory contribution ensures that all workers accumulate pension rights throughout their careers, providing a foundational income during retirement.
These company-sponsored pension plans are optional and are offered at the discretion of the employer. When provided, they represent an attractive employee benefit that can significantly enhance the overall pension amount upon retirement.
Employers can fund these plans internally or externally with the assistance of insurance companies or pension funds. In some cases, employees may also contribute to these supplementary pension plans, enjoying tax deductions as an incentive. Such schemes are valuable tools for employers to attract and retain talent, often serving as an alternative to salary increases with mutual benefits for both the employer and the employee.
The third pillar of Luxembourg's pension system is individual retirement provision through private pension plans, typically in the form of old-age insurance contracts. These contracts are primarily designed to save for a more comfortable retirement. Given that the expected state pension might not fully match the income earned during one’s professional career, private pension plans help maintain a certain standard of living post-retirement.
Private pension plans allow individuals to build wealth while benefiting from tax deductions, as the premiums paid into these contracts can be deducted up to a maximum allowable limit. Upon retirement, the accumulated funds from these plans can be received either as a lump sum or as an annuity, providing additional financial security.
Pension scheme in the Grand Duchy of Luxembourg
Now that we have clarified the different types of pensions, let's examine in detail how the pension scheme in Luxembourg works. We will look at the various contribution funds, the Luxembourg pension age, the amount of retirement income, tax implications, and more.
Pension funds in Luxembourg
Generally, there are two different regimes: the general regime, which covers private sector employees, and the special regime, which covers civil servants, municipal employees, and CFL (Luxembourg National Railway Company) employees.
Retirement conditions
Employees and self-employed workers are entitled to a Luxembourg pension as long as they meet the age and recognized contribution years requirements. There are three possible minimum retirement ages.
At 65 years
At 60 years
At 57 years
Amount of the Luxembourg pensions
The old-age pension consists of two main components: the flat-rate increases and the proportional increases.
- Flat-rate allowances are granted based on the duration of insurance, up to a maximum of 40 years. They consider periods of mandatory, continued, optional, or retroactive purchase insurance and complementary periods.
- Proportional allowances are granted based on the contributable income paid during the insurance career.
Additionally, pension calculations consider adjustments for the cost of living and salary developments in the labor market. There are minimum and maximum pension amounts in place as well.
Generally, the pension cannot be less than 90% of the reference amount if 40 years of insurance periods have been covered. This amount decreases by 1/40 for each year missing between 20 and 39 years. The annual reference amount is set at 2,085 euros based on the 1984 index number 100.
In 2024, the minimum pension corresponds to 2,244.82 euros gross per month in Luxembourg. On the other hand, the maximum pension amount is 5/6 of five times the reference amount, which corresponds to 10,392.67 euros gross per month.
Taxation of pensions
Luxembourg old-age pensions are subject to three main deductions that reduce the retiree's final payout: health insurance, dependency insurance, and income tax.
Health insurance, at 2.8% of the gross pension shared between the retiree and the National Pension Insurance Fund (CNAP), ensures retirees have access to healthcare.
Dependency insurance, a 1.4% deduction implemented in January 2024, goes towards long-term care for retirees needing extra support.
Finally, pensions are taxed like other income based on the retiree's total taxable income. These deductions ensure retirees contribute to essential services while still receiving a significant portion of their retirement benefits.
How to apply for a pension?
Even if you meet all the requirements, a Luxembourg pension is not granted automatically, you must submit an application. Here, we'll cover the key elements of the application process, the timelines to respect, the entities to contact, the necessary documents, and other important details to consider.
The timing for submitting your pension application depends on where you have worked:
- If you have worked only in Luxembourg. You can submit your pension application between 2 and 6 months before your pension start date.
- If you have been affiliated with multiple pension schemes within Luxembourg. You can apply up to 6 months before the pension start date.
- If you have worked in Luxembourg and in one or more other countries. It is advisable to submit your application at least 6 months before your intended pension start date.
The entity to which you must submit your application depends on your country of residence and the pension scheme affiliations throughout your career.
To apply to the CNAP, you need to send the original application form completed and signed by mail to: Caisse Nationale d’Assurance Pension, L-2096 Luxembourg.
The time required to process a pension application depends on the availability and reliability of the provided data. Processing can take from a few weeks to several months, especially if information needs to be gathered from abroad.
Can expats recieve a pension in Luxembourg?
Foreign nationals, regardless of their country of origin, who work or have worked in Luxembourg and meet the Luxembourg pension requirements are eligible to apply for a pension. The documents and procedures are the same as those for Luxembourg nationals.
Foreign nationals who work or have worked in Luxembourg but do not reside there, such as many cross-border workers, have the same pension rights as Luxembourg residents. The only difference, as mentioned in the previous section, is that these individuals must submit their application to the competent authority in their country of residence. The foreign organization will then submit an application on their behalf to the Caisse Nationale d’Assurance Pension (CNAP) to claim their Luxembourg pension rights.
If you receive a pension from any country and the sum of this pension and all your other income exceeds the Luxembourg social inclusion income, you can apply for a residence permit in Luxembourg for private reasons. For more information on this topic, we recommend reading our dedicated guide.
How to move to Luxembourg for private reasons
Luxembourg pension calculator
Calculating the exact amount of your Luxembourg pension involves lots of variables. The calculation process is complex, encompassing various formulas and multiple stages. Currently, there is no official Luxembourg pension calculator.
It is important to note that due to the complexity of the calculations and the numerous parameters involved, online calculators generally provide only approximate results. Therefore, it is advisable not to rely solely on these tools for an accurate pension estimate.
To obtain a more precise estimate of your Luxembourg pension, consider the following options.
Consult a professional
Research the formulas
Request an estimate from CNAP
Life and benefits of pensioners in Luxembourg and Europe
In Luxembourg, pensioners enjoy a well-deserved retirement, characterized by various activities and benefits that enhance their quality of life.
Elderly individuals often engage in leisurely activities such as spending time with family and friends, pursuing hobbies, traveling, and enjoying the country's natural beauty through outdoor activities. Many pensioners also participate in community activities, volunteering, and cultural events, fostering social connections and a sense of belonging. While some pensioners may choose to work part-time or engage in volunteer work, the majority typically enjoy their retirement years without the need for employment.
Luxembourg offers various benefits and social security programs to support its pensioner population:
- Discounts for services
Pensioners may be eligible for discounts on cultural events, leisure activities, and healthcare services, helping to reduce living expenses.
- Home assistance
Elderly individuals with specific needs may receive home assistance services, including meal delivery, and home care, enabling them to maintain their independence and live comfortably in their own homes. You can get more information on the dedicated page of guichet.lu.
- Mobility assistance
For those with reduced mobility, Luxembourg offers services such as adapted transportation and mobility aids, helping pensioners stay active and connected with their community.
You can learn more about all the advantages and benefits available to seniors in Luxembourg on the Luxembourg government's dedicated website, and in the guide they have created, which you can download on Luxtoday.
Pensions in Europe
We've covered the details of the pension system in Luxembourg, but how do pensions in other European countries compare? To gain insight into this, we can refer to the Mercer CFA Institute Global Pension Index (MCGPI). This index evaluates and ranks the pension systems of various countries worldwide, classifying them into several categories based on their performance.
| Grade A | This category is for first-class and robust retirement income systems that deliver good benefits, are sustainable, and have a high level of integrity. In the latest edition, there are 4 countries: the Netherlands, Iceland, Denmark, and Israel. |
| Grade B | These grades are for systems that have a sound structure with many good features. Here, we find Australia, Finland, and Singapore, aiming to become A-graders. Another 12 countries, the majority of which are European, are Norway, Sweden, the United Kingdom, Switzerland, Canada, Chile, Uruguay, Belgium, New Zealand, Portugal, and Germany. |
With relatively high retirement benefits, Luxembourg offers a reliable and secure pension for its aging population. Although navigating the pension landscape in Luxembourg may at first seem complex, the application process is actually straightforward, just fill out a form and send it to the CNAP.
It is important however to think about retirement early and make forecasts and simulations and take the necessary steps such as subscribing to an additional private pension plan if applicable to ensure you have a pension that matches the standard of living you expect to have.
Frequently Asked Questions (FAQ)
What is the minimum pension amount in Luxembourg?
Can I receive a Luxembourg pension if I live outside the country?
How long does the pension application process take?
Are expats eligible for a Luxembourg pension?
Source: guichet.public.lu, guichet.public.lu, guichet.public.lu, impotsdirects.public.lu, axa.lu, www.justarrived.lu, paperjam.lu, impacto-conseil.com, infos.rtl.lu, www.csl.lu, cnap.public.lu, cnap.public.lu, www.luxsenior.lu, www.luxsenior.lu, rpc.cfainstitute.org, rpc.cfainstitute.org
We took photos from these sources: Esther Ann on Unsplash
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