Sponsored content by Simône van Schouwenburg – Business Development ING Expat Services • Insights •Expat Corner• 18.09.2018
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Did you know that the old age pension system in Luxembourg is one of the best in the world? According to the Global Age Watch Index 2015 published by HelpAge International, a global network of organisations promoting the right of all older people to lead dignified, healthy and secure lives, Luxembourg ranks first in the income security domain, with the second highest regional Gross National Income per capita (US$59,241.90) and the second lowest regional poverty rate in old age (2,7%). But how do retirement pensions work in the Grand Duchy, who can benefit from it and how?
Retirement in Luxembourg as an expat or a cross-border worker is completely possible. To be able to benefit from a retirement pension in the Grand Duchy of Luxembourg at the age of 65, you must have paid contributions to the pension plan – whether this insurance is compulsory, continued, optional or a retroactive purchase - during a minimum period of 120 months in Luxembourg or another EU country. Pension payments from countries within the European Union transfer to each other. Even some non-EU countries like the United States can transfer full or partial credit. So, don’t hesitate to look into the conditions from your home country when the time gets closer to retirement at work.
If you don’t fulfil the conditions of contributions to the pension plan in Luxembourg defined above, you have two options. Option 1: you continue your professional activity with the same employer and in this case, the pension will fall due upon completion of the compulsory contribution period of 120 months. Option 2: you ask for the refund of the contributions (employer and employee’s parts) paid in Luxembourg, adjusted for inflation, and you lose the possibility of getting a Luxembourg pension.
Can I benefit from the early retirement?
Yes, but under certain conditions. You can retire at the age of 57 if you can prove 480 months of contributions to compulsory insurance. If not, you can retire at the age of 60 provide that you have paid 480 months of contributions, among which 120 months for compulsory, continued, optional or retroactive insurance. Think twice before requesting for an early retirement. You are allowed to carry out a professional activity but this activity may affect the granting, maintenance and calculation of your pension. If you benefit from the normal old-age pension at the age of 65, your performance of a professional activity has no effect on the calculation of your pension.
How is my pension calculated?
A few months before retiring, you have to make your request to the pension fund of the country where you live. The country of residence then calculates retirement credits according to the legislation and to that of one or several countries where you have paid contributions, according to the European or bilateral agreements. You will benefit from services from every country where you paid contributions, according to the legislation of each of these countries. If you live in Luxembourg when retiring, you have to send your application form1, correctly filled and duly signed, to the National Pension Insurance Fund (Caisse nationale d’assurance pension – CNAP). The level of your pension is dependent on various factors: the length of your professional career, the salary earned during your insurance record and the ceiling on earnings subject to contributions (i.e. the amount beyond which the declared salary is no longer considered in calculating pension, which is five times the social minimum wage2).
The insurance record – with a maximum duration of 40 years - includes periods of compulsory insurance and equivalent insurance periods. These periods are both taken into account to establish eligibility for pension (contribution period) and to calculate its amount (proportional mark-ups and flat-rate mark-ups). It is good to know that the equivalent insurance periods, which are not covered by contributions, include, among others, the years of study and professional training between the age of 18 and 27. If this is your case, don’t forget to provide with your application form to the CNAP a copy of your diploma or an enrolment certificate from the educational institution.
Generation Pension Universal Life
For more information about old-age pensions, you can visit the website of the CNAP: www.cnap.lu. And keep in mind that you can build up a supplementary personal pension if you are afraid of losing your spending power when you take your retirement. Génération Pension – Universal Life, a life insurance policy of ING Luxembourg, allows you to grow your savings without having to make cutbacks or worrying about managing this capital and to deduct the money you set aside from your current tax – a maximum of EUR 3,200 per year starting from the fiscal year 2017. If you want to know more about our product, click here.
2 The social minimum wage is EUR 2,048.54 (increased by 20% for a skilled worker).