Being retired and working at the same time : how does it work?

The news is not very good for pensions in Luxembourg. According to the president of the National Pension Insurance Fund (CNAP), the Pension Fund’s reserves will run out by 2032, after which a reform must be implemented. So, if you are going to be retired soon, it might be time to think about it and - why not? - to continue working in a paid job. In Luxembourg, you can combine income from your work and your pension. However, depending on your retirement pension, you must follow several rules.

As a reminder, there are two kinds of pensions in the Grand Duchy: the retirement and the early retirement pension. Even if you are an expat or a cross-border worker, you can draw a retirement pension as long as you are at least 65 years old and can prove that you have paid contributions to the pension plan for a minimum period of 120 months in Luxembourg or another EU country. You may be entitled to the early retirement pension at age 57 or 60, provided that you meet certain conditions. You can retire at age 57 if you can prove 480 months of compulsory insurance contributions. If not, you can retire at age 60 provided that you have paid 480 months of contributions, among which 120 months for compulsory, continued, optional or retroactive insurance.

You have a retirement pension

In that case, you can carry out a professional activity, as a salaried or a self-employed, whether on a full-time or part-time basis. You are free to receive from both sources at once. Your gross pension amount won’t be affected.

If you are engaged in a salaried work, you can even ask the Joint Social Security Centre (CCSS) to reimburse you for the pension contributions paid after age 65. However, remember that the reimbursement is only limited to the insured part of your contributions and must be requested once a year.

You have an early retirement pension

In that case, you have to bear a few restrictions in mind.

If you don’t want your pension to be affected by your salaried work, you can’t earn more than one third of the minimum wage per month, i.e. €771.12 (€2,313.38 divided by 3). In other words, if you earn less than €9,253.48 per year (€771.12 x 12), you will be able to receive income from both sources. If you are self-employed, your income, spread across the year, must not exceed one third of the minimum wage per month.

What happens if your salary or income exceeds one third of the minimum wage per month? The situation is very simple if you are self-employed: your early retirement pension is withdrawn. If you are salaried, there are three potential scenarios.

Scenario 1. Your salary exceeds one third of the minimum wage per month, but the total sum of your pension and earnings is still lower than the average of your five highest contributory annual salary amounts on your social security record. Therefore, no reductions are made to your pension.

Scenario 2. The total sum of your pension and earnings is higher than the average of your five highest contributory annual salary amounts on your social security record. Therefore, your pension is reduced so it does not exceed the upper limit.

Scenario 3. Your salary is higher than the average of your five highest contributory annual salary amounts on your social security record. As a result, your early retirement pension is withdrawn.

To make it clear, let’s take an example. Suppose you receive €3,800 gross per month from your early retirement pension and a gross monthly salary of 2,400. The average of your five highest contributory annual salary amounts is €4,700.

Your salaried earnings are higher than the third of the minimum wage per month, i.e. €771.12. Your total income – pension + salary – is €6,200 (€3,800 + €2,400). It is above the threshold of the average of the five highest salary amounts (€4,600). The anti-cumulation rules apply. The amount over the threshold reduces your pension. The amount over the threshold is €1,500 (€6,200 – €4,700) and your pension is reduced to €2,300 (€3,800 - €1,500). Your total income will be €2,400 + €2,300 = €4,700.

If you want to avoid the reduction of your early retirement pension, you have to ensure that your earnings don’t exceed the set limit. To help you, you can use the created by the Chambre des Salariés Luxembourg (CSL). It calculates the amount of your early retirement pension combined with a salary.

Now, suppose that your earnings of €2,400 gross per month don’t come from a salaried activity, but from a self-employed activity. In that case, the anti-cumulation rules are more restrictive. Your early retirement pension will be withdrawn because you earn more than one third of the minimum wage per month (€771,12). So, be very careful if you want to carry out a self-employed activity when retiring early. Any mistake with your calculations can have serious consequences for your early retirement pension.

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Minimum wage as at 1 April 2022. It will be increased by 3% in January 2023.