The impact of article 111 bis of the Luxembourg Income Tax Act on tax deductions
In Luxembourg, individual retirement savings under Article 111 bis of the Income Tax Act (LIR) make it possible to prepare a pension supplement while benefiting from an immediate tax advantage. This scheme is the third pillar of the Luxembourg pension system, alongside the statutory pension (cnap) and supplementary company schemes.
A 111 bis pension savings contract allows the premiums paid to be deducted for tax purposes, up to the annual ceiling of €4,500 per taxpayer (ceiling increased since 1 January 2026). This deduction applies to both Luxembourg residents and cross-border workers, subject to tax return in Luxembourg.
The contract takes the form of a life insurance policy for old-age pensions, with flexible payments (monthly or annual) and investment options adapted to the risk profile, including secure vehicles or vehicles invested on the financial markets. The amounts paid are not taxed at the entrance.
The benefits from a 111 bis contract are accessible between the ages of 60 and 75, in the form of a lump sum or annuity, with a regulated and generally advantageous tax regime at maturity. The aim is to supplement the public pension, in a context of pension reforms and increasing pressure on the legal system.
In practice, 111 bis pension savings is a central retirement planning tool in Luxembourg, combining tax advantages, flexibility and long-term visibility, particularly relevant for working people wishing to anticipate a drop in income in retirement.
↓ What is article 111 bis LIR?
↓ What is a supplementary pension policy according to article 111bis?
↓ What are the deductions for retirement savings since the 111bis tax reform?
↓ Pension Plan: the supplementary pension contract from Baloise Assurances
Article 111bis LIR, introduced into Luxembourg law in 1991, provides a framework for tax advantages linked to retirement savings. It allows taxpayers to deduct up to €4,500 a year from their taxable income, regardless of their age or family situation.
This provision applies to Luxembourg residents and cross-border workers who are assimilated for tax purposes (i.e. who file a tax return in Luxembourg).
Article 111bis LIR is part of an overall strategy to encourage long-term savings and complement the public pension system.
The main points of the pension reform adopted in December 2025, for the year 2026:
- Contributions : increase in the overall rate from 24% to 25.5%
- Phased Retirement : New option for a smoother transition to retirement
- Retirement at 60 : extension of the contribution period (from 481 months to 488 months)
- Studies : more flexible calculation for training periods after the age of 18
- Savings 111bis : new tax deduction ceiling of €4,500 per year.
The supplementary pension contract is a life insurance contract subject to article 111bis LIR and forming part of the 3rd pillar of the Luxembourg pension system.
This contract allows you to create an additional nest egg payable at the time of retirement. In order to benefit from tax deductions, the contract must meet certain conditions (non-exhaustive list):
- Mandatory minimum period of 10 years to benefit from tax deductions.
- Maximum subscription age set at 65 years old at the time of signing the contract.
- Free payments are allowed without any constraint of regularity or minimum amount.
- Benefits can only be recovered between the ages of 60 and 75 in the form of a lump sum or annuity.
- Early redemption is prohibited except in exceptional cases such as serious disability or death of the policyholder.
Premiums paid into a retirement insurance policy are tax deductible in the tax return filed in Luxembourg, in the special expenses section for a maximum of € 4,500 per year and per taxpayer.
When it comes to recovering your accumulated savings, you benefit from flexible terms and advantageous taxation:
- The capital received is taxed at 50% of the standard rate.
- The life annuity is taxable for only half of its amount.
Important to remember: this tax applies to Luxembourg tax residents. Your tax situation at the time of payment will determine the actual tax treatment. Several elements influence the final calculation:
- Your country of residence at the time of withdrawal
- Your other income for the year
- Your applicable tax bracket
For an accurate estimate adapted to your situation, we advise you to consult a tax specialist or your agent.
The 2026 reform further enhanced the appeal of retirement savings contracts. Every taxpayer can deduct up to €4,500 a year from their taxable income, regardless of their personal situation. This measure applies to Luxembourg residents and cross-border workers filing tax returns in the Grand Duchy.
The benefits are not limited to the tax deduction. These contracts offer great flexibility:
- Choice of monthly or annual payments.
- Possibility of making additional payments.
- A variety of investment options, from guaranteed rates to investment funds.
At maturity, between the ages of 60 and 75, the capital built up can be received in the form of an annuity or a lump sum, depending on the policyholder's preferences.
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.
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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 4,500.
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.
An employer group pension plan is a collective retirement savings scheme set up by a company for its employees. This supplementary scheme offers advantages for both employers and employees.
The company benefits from favourable tax treatment on its contributions, while at the same time making its remuneration packages more attractive.
If the employer has set up a pension plan for its employees, the employee can also contribute up to 1,200 euros a year. This personal contribution is also tax-deductible.
Article originally published in November 2021 and updated in January 2026.
Taxpayers filing their taxes in Luxembourg may benefit from tax deductions under Article 111bis. This provision applies to Luxembourg residents and cross-border workers who are treated as residents for tax purposes and who file a tax return in the Grand Duchy. The maximum deductible amount is €4,500 per year per taxpayer.
The tax deduction ceiling for a retirement savings plan (Article 111bis L.I.R.) has been increased to €4,500 per year per taxpayer since 1 January 2026, up from €3,200 previously. This increase applies to Luxembourg residents and cross-border workers who are treated as residents for tax purposes and who file their tax returns in Luxembourg.