In Luxembourg, the pension system is organised around three pillars:
- Pillar 1: compulsory, and financed by social contributions;
- Pillar 2: the pension scheme set up on the employer’s initiative for its employees, or for a category of its employees;
- Pillar 3: financed on a voluntary basis by premiums paid into a life insurance policy at the initiative of an individual.
Policies governed by Articles 111 L.I.R. and 111-bis L.I.R. come under this third pillar and may be tax deductible.
It is now common knowledge that an individual can no longer rely solely on Pillar 1, which may be subject to various changes in the future. An individual therefore runs the risk of seeing his pension reduced. The need to build up additional retirement capital is therefore becoming increasingly indispensable.
A pension policy is a life insurance policy which is subject to Article 111-bis L.I.R. and forms a part of the 3rd pillar of the Luxembourg pension system.
Such policies enable you to create an additional nest egg to be withdrawn at the time of retirement. To benefit from tax deductions, the policy must meet certain conditions (non-exhaustive list), namely:
- it must have been taken out with an insurance company or bank which is established in Luxembourg or is authorised in a Member State of the EU and approved for the conduct of business in Luxembourg;
- for a minimum period of 10 years;
- the savings may be withdrawn at no earlier than 60 years of age and no later than 75;
- the benefit is payable as a lump sum by instalments, or a life annuity, or a combination of the two.
The premiums paid into a pension policy are tax deductible in tax returns made in Luxembourg.
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Since the tax reforms of 28 December 2016, the deductible ceilings for all pension products have been increased under Article 111-bis.
In practice, by investing in a ‘pension product’ type of policy, you can benefit from EUR 3,200 in tax deductions, whatever your age or your family situation.
When the policy terminates, the accumulated capital is paid out in one of the following ways:
- In the form of a lump sum.
- In the form of an annuity.
- Payment of the capital in a maximum of three instalments.
These 3 methods can be combined.
Pension Plan is the pension policy from Baloise Assurances that enables you to save for your retirement while benefiting from the maximum tax deduction every year by the terms of Article 111-bis.
With Pension Plan you can invest for your retirement from EUR 50 per month. Indeed, Pension Plan is a flexible pension policy that may be paid for with monthly or annual premiums. It is also possible to contribute additional lump sums at any time.
Depending on your risk appetite, Pension Plan enables you to invest in sub-funds at a guaranteed rate, or in investment funds.
Contributions paid in the Pension Plan can be recovered from the age of 60 to 75 and the premiums are not subject to any tax but are tax deductible up to EUR 3,200.
The deductions which are possible thanks to the Pension Plan are also available to cross-border commuters, provided that they file a tax return in Luxembourg.