Luxembourg Pensions – A Rough Guide

The Luxembourg pension system is made up of three pillars: the state pension, occupational pensions and personal pensions.

This ‘rough guide’ touches on all three pillars and aims to clarify any misunderstandings you may have about qualifying for the state pension. It’s also designed to make you aware of other pension options for expats in Luxembourg.

Pension age in Luxembourg

The official state pension age in Luxembourg is 65, provided that you have made 120 months’ worth of social security contributions (including mandatory and optional contributions).

Therefore, to qualify to receive a partial state pension, you will need to have made at least 10 years’ worth of social security contributions by the time you turn 65.

To qualify to receive the full state pension, you must have made social security contributions for at least 40 years (480 months).

Eligibility to claim the Luxembourg state pension

As an expat living and working in Luxembourg, you have the same equal right to the state pension as those who were born in Luxembourg, provided you meet the above criteria.

Note that pension payments from countries within the European Union (EU) transfer to each other. If you’ve worked in other EU countries, you may have accumulated pension rights in each of them. In that case, you will need to apply to the pension authority in the country where you last worked.

If, however, you haven’t made enough social security contributions to qualify for even a partial state pension, you can apply to have your Luxembourg social security contributions reimbursed.

Note: you must be at least 65 years of age at the time of applying for a reimbursement and not be benefiting from a personal pension based on your contributions in Luxembourg (or any other country).

How much is the state pension in Luxembourg?

As at 2019, monthly state pension payments ranged from a minimum of €1,841 to a maximum of €8,525. Today, the average full state pension for someone who has worked 40 years in Luxembourg is €3,862 per month.

For those who have not spent their entire career in Luxembourg, they receive an average of €1,266 per month, plus pensions from other countries in which they have worked.

Claiming the Luxembourg state pension

To claim the state pension, you must submit a formal request to the National Pension Insurance Fund (Caisse nationale d’assurance pension in French). Remember that it’s a bureaucratic process, so allow adequate time for them to deal with your request well ahead of when you plan to retire.

What to do if you don’t qualify for the Luxembourg state pension

Occupation pension plans

Like many expats in Luxembourg, you likely benefit from a pension plan offered by your employer. These occupational pensions are the second pillar in the Luxembourg pension system.

Employers can choose to finance these pension plans in the form of either internal financing or external financing, such as insurance companies or pension funds. One of the major perks of a company pension plan is that, because the money is deducted directly from your salary before you receive it, it’s tax-free.

If your company pension plan allows, you can make personal contributions to build up your retirement capital. Another advantage is that, depending on your specific plan, you may be able to access your company pension benefits earlier than the official retirement age.

Personal pension plans

The third pillar of the Luxembourg state pension system are personal pensions, which are essentially savings accounts. But unlike a regular savings account, you won’t be able to access your money until you reach retirement age.

When you do reach retirement age, you can choose to make a lump sum withdrawal (which must not exceed 50% of your total savings amount) or receive monthly payments; however, carefully weigh the tax implications of receiving your retirement income as a lump sum.

You will need to submit a tax return to declare any income from a personal pension. Therefore, it’s always wise to seek professional financial and tax advice before making decisions about personal pensions and lump sum withdrawals in retirement.

Other Luxembourg pension options for expats

If your spouse dies, you may qualify for a survivor’s pension (pension de survivant in French; Hinterbliebenenrente in German. To be eligible, there are certain criteria to meet and eligibility also depends on whether or not you were married or divorced at the time of your spouse’s death. The European Commission outlines in detail everything you need to know about claiming the survivor’s pension in Luxembourg.

If you have suffered a disability caused by an accident, or if you suffer from a certain illness or incurable disease, you may be eligible for an additional invalidity pension (pension d’invalidité in French; Invaliditätsrente in German). The European Commission also provides the information you need to understand in what situations you can claim the additional invalidity pension in Luxembourg.

Additional pension options for expats in Luxembourg

If you are a UK expat moving to Luxembourg, you may be able to transfer your pensions into a Recognised Overseas Pension Scheme (ROPS). This can allow you to consolidate your pensions to an international pension plan with a potentially more advantageous structure. If you transfer to a ROPS, the benefits broadly cease to be governed by UK pension regulations, although there are still certain reporting and other requirements to meet.

Another option is to transfer your pension to a Self-Invested Personal Pension (SIPP), a personal pension with wider investment powers. If you transfer your benefits to a SIPP, those benefits will still be subject to UK pension regulations.

Transferring a personal pension isn’t right for everyone nor for every pension scheme, so before making a decision, you need to understand whether a pension transfer is the best thing for you as an expat in Luxembourg. We have already covered the questions you need to ask yourself and your financial adviser before deciding to transfer your pension to an international scheme.

Saving independently for your retirement

If you know you won’t meet the minimum amount of 10 years (120 months) of social security contributions to qualify for even a partial state pension in Luxembourg, you will want to start saving independently towards your retirement.

International savings accounts can help ensure you have enough to live comfortably once you stop working. If managed correctly, they boast legitimate financial advantages for expats over domestic banking arrangements. We talk more about international savings accounts and making the most of tax advantageous investments in our post on retirement planning for expats.

Speak to an experienced financial adviser

When it comes to pensions and retirement planning, ensure that you pursue all of your options. This is especially important for expats, so speak with a qualified financial adviser who has experience in international pensions and cross-border retirement planning.

If you have any questions about pensions or planning for your retirement, get in touch.