Some taxpayers choose to pay personal contributions to a private pension plan (third pillar of pension insurance) as a means of supplementing their income on retirement. Such private pension plans are entirely financed by the taxpayer, contrary to employer-sponsored supplementary pension plans.
In some conditions, the contributions paid into a private pension plan are deductible by the policyholder up to a certain limit, which varies depending on the age of the policyholder at the beginning of the taxable year.
In some conditions, the benefits paid when the private pension plan matures—either in the form of an annuity or a lump-sum capital payment—qualify for favourable tax treatment.
Income from a Luxembourg private pension plan received by a non-resident taxpayer is, in theory, taxed in the taxpayer's country of residence.
Who is concernedAny resident who receives income from a private pension plan must file an income tax return.
When the private pension plan matures, and provided that the terms of the plan comply with all Luxembourg provisions governing private pensions, the benefits accrued under the plan qualify for favourable tax treatment, as follows:
- benefits in the form of a lump-sum capital payment (not exceeding 50 % of the accrued savings) are considered as extraordinary income and are taxable at half of the overall rate (maximum 21.40 % or 21.80 % for 2012 and 2013);
- monthly annuity payments (balance of accrued savings) are 50 % tax exempt. The balance is taxable at the ordinary progressive rates with other categories of income.
Income from early reimbursement of accrued savings (before the policyholder reaches 60 or before the end of the minimum 10-year contributory period) does not qualify for favourable tax treatment, except in the case of severe illness or disability.
How to proceed
Resident taxpayers who receive income from a private pension plan must file an income tax return and report the benefits received under the plan (annuities or lump-sum capital payments).
Declaration of annuity payments
Resident taxpayers must report any monthly annuity payments they received during the year from a private pension plan on page 8 of the income tax return (form 100, section "Net income from pensions or annuities"). The taxpayer must report the following information:
- boxes 809/810 (row B): the gross amount of the annuity payments from the private pension plan;
- boxes 844/849 (row b): expenses for the acquisition of income (minimum flat-rate allowance, or actual expenses). The taxpayer is entitled to a flat-rate tax allowance of EUR 300 per year for all pensions or annuities received during the year (rows A, B and C combined). In the case of joint filing, this allowance is granted to each spouse or partner receiving a pension or annuity;
- boxes 852/853 (row c): 50 % tax exemption for life annuities from a private pension plan. Taxpayers must report half of the amount reported in row C (boxes 817/818).
The total amount of net income from pensions or annuities is to be reported in boxes 860/861.
Resident taxpayers must report the lump-sum capital they received during the year from a private pension plan on page 11 of the income tax return (form 100, section "Miscellaneous net income") by indicating their income in boxes 1121/1122 (line D).
Resident taxpayers must also fill in the 'Extraordinary income' section on page 12 of the income tax return form if they wish to obtain the benefit of having the lump-sum capital from their private pension plan taxed at half of the overall rate. The taxpayer specifies the type of revenue (lump-sum capital from a private pension plan) in box 1201 and reports the amount of the lump-sum capital in boxes 1202/1203 and in box 1216.