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Pension reforms in Luxembourg: summary

Characteristics of Luxembourg’s pension scheme

  • The pension system is essentially based on the public scheme, which has two components: on the one hand, a general scheme for employees working under private law and the self-employed, and on the other hand, a special scheme for civil servants.
  • The general scheme for the private sector incorporates the payment of a pension comprising a fixed amount based on the number of years insured and a variable amount based on salary.
  • Some employers provide complementary pensions for their employees in addition to the legal scheme.
  • The normal retirement age is 65 provided contributions have been made for at least 10 years. However, there are early retirement arrangements from the age of 57 for employees with 40 years of compulsory pension contributions or from the age of 60 for employees with 40 years of compulsory, voluntary or credited contributions.
  • In 2015 the average age for first claiming a retirement pension was 61.3 years.
  • The general scheme also provides for the payment of a minimum pension, which for 40 years of work was EUR 1 771.75 as of 1 January 2017 (with a legal minimum wage of EUR 1 998.59 on the same date).

The 2012 pension reform

  • Because of its sound financial state based on continuous growth in paid work, Luxembourg had until recently been spared the structural reforms of pension regimes that most European countries had experienced. Nevertheless, it implemented an initial major reform with the Law of 21 December 2012 on pension reform, which made a number of changes.
  • The reform maintained the pay-as-you-go scheme, as well as tripartite financing – the State contributes directly to the scheme – and shared financing, since the social partners must agree on the contribution rates. The legal retirement age (65) was not increased and early retirement at the age of 57 or 60 was not directly affected.
  • Most of the measures entered into force in 2013 and are being applied gradually. They aim, in particular, to encourage the insured to extend their working lives in order to take into account the continuous increase in life expectancy and to ensure the viability of the pension scheme in the long term. The reform encourages the combination of an early pension with paid part-time work.
  • The amount of pensions paid was until 2013 adjusted automatically in line with inflation (provided that inflation exceeded 2.5 % for the period in question). Since 1 January 2013, it has been possible to reduce the increase if, in the course of a year, the scheme’s current expenditure exceeds the revenue from contributions.
  • The reform also encourages insured persons who have had temporary career breaks for family reasons to contribute voluntarily to the pension scheme by reducing the minimum monthly contribution from EUR 300 to EUR 100.
  • The government carried out an initial evaluation of the impact of the reform in 2016.
  • The goal of extending the working life of insured persons is also at the heart of the reform of the vocational rehabilitation scheme for people with partial incapacity to work, which was adopted in 2015. It seeks to help those undergoing rehabilitation to stay in work, particularly older people.