How to calculate your retirement in Luxembourg

How are old-age pensions allocated?

Entitlement to the statutory pension is not automatic. In Luxembourg, the final amount of your pension depends both on the total length of your career (the number of months contributed) and the exact level of income declared throughout your working life. To approach the calculation method with confidence, it is important to understand that not all insurance periods have the same financial impact. Periods of actual professional activity (compulsory periods) do not have the same mathematical value as so-called credited periods (such as years of study or parental leave), which count towards the qualifying period but are calculated according to different methods.

The legal retirement age is set at the age of 65 in Luxembourg, provided that there are 120 months of insurance paid (mandatory, continued, optional or retroactive purchase).These periods are called "stages" in French.

Nevertheless, an early retirement pension can be granted at age 57 if the insured person has completed 480 months of compulsory insurance periods.

To benefit from your pension, you must make a formal request to the National Pension Insurance Fund (CNAP).

The form can be online. Cross-border workers must approach the competent body for their place of residence.

"Because the processing time is pretty long, consider carrying out this process several months before your retirement date" advises Maria.

This retired nurse was able to claim her pension rights at the age of 60.In fact, she had a period of compulsory insurance of 32 years because of her salaried professional activities, to which was added an additional period of 8 years for bringing up her two children.

How can you estimate the amount of your pension?

The calculation carried out by the National Pension Insurance Fund (CNAP) is based on two types of cumulative and progressive pension increases over the entire career:

• Flat-rate increases: They are calculated solely on the basis of the length of your career (the number of validated insurance years), regardless of your salary level.
• Proportional increases: They are based directly on the income on which contributions were paid. The higher your recorded earned income over the course of your working life has been, the more these increases will raise your final pension.

How is a pension in Luxembourg actually calculated?

To turn the CNAP rules into an understandable formula, you should know that your past salaries are not simply added together as they stand. To neutralise the effects of time, each past annual salary is first converted on the basis of the reference year (index 100). These amounts are then revalued using a specific factor before finally being adjusted to the current cost-of-living index. The result of this operation determines the overall annual amount of your entitlement, which simply needs to be divided by 12 to obtain your monthly pension. However, please note: the figure obtained is always a gross amount, subject to health insurance social security contributions as well as Luxembourg income tax.

Which factors influence the amount of your pension? 

Several variables can affect the level of your government pension. Beyond the level of your income and the continuity of your employment history, the nature of your qualifying years plays a major role. An essential point to consider concerns insured persons with an ‘international career’ profile. If you have divided your working life between the Grand Duchy and other countries, please note that the CNAP calculates your pension on a pro rata basis based solely on the years worked in Luxembourg. Coordination of entitlements is then activated at European Union level to aggregate qualifying quarters in order to validate your retirement eligibility conditions, without merging the paying pension funds.

Can you estimate your pension before you retire?

It is entirely possible to get a clear picture before the official retirement date. To obtain a legal and official estimate, you should contact the CNAP by requesting a career record extract, available directly online via the MyGuichet platform. Unofficial online simulators can give you an indication, but only the pension fund can provide a legally binding figure. Before submitting your request, we strongly recommend gathering all supporting documents confirming your periods of study, training or work carried out outside Luxembourg in order to avoid any omissions in the record of your entitlements.

The employer's supplementary pension

In Luxembourg, many people benefit from a pension plan offered by their employer. Even though it is still optional, this system constitutes the second pillar of the pension system in the Grand Duchy.

The employer can finance this pension plan in the form of internal or external financing (from an insurance company or a pension fund).

Bruno, retired accountant, can only rejoice: "I worked for 20 years in a service company that had put a supplementary pension scheme in place. In addition to my legal pension, I am now receiving a supplement in the form of a life annuity. "

With this type of complementary scheme, the employer has a great asset for recruiting and retaining his teams. This can even be an alternative to a salary increase, with many benefits for both parties.

If the plan allows, employees can make personal contributions to this supplementary pension scheme, with tax deductions as the key.

Finally, note that in the form of a life annuity or a lump sum, supplementary pension benefits are not taxable in Luxembourg.

Prepare for your retirement

Spending time helping non-profit organisations, developing your artistic talents, devoting time to your grandchildren, these are definitely resolutions that will allow you to fully enjoy your retirement.

And to avoid financial obstacles on your way, think about retirement insurance.

"I did not want to lose purchasing power when I retired," says 68-year-old Claudia. So for my fortieth birthday I decided to set up additional savings. This is an approach that allowed me to pay less tax because tax deductions were incentives. At present, the capital is paid in the form of a monthly pension. This is a supplementary income that is essential for me to feel happy and spoil my loved ones.