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Retirement, in the context of the general regime of pension insurance, may be requested by insurance holders having reached the maximum working age or who have paid contributions for long enough to draw their pension.
The benefits provided are calculated on the basis of the number of years of work completed and the contributions paid, which form the insurance history;
Depending on their insurance history, the insured party could opt either for a normal or an early old-age pension.
Who is concerned
All persons engaged in a professional occupation (be it on an employed or self-employed basis), or drawing a replacement benefit (sickness benefit, maternity benefit, workplace accident compensation or unemployment benefit), are covered by the general pension insurance regime.
Pension insurance guarantees a normal old-age pension at 65 years of age (legal retirement age). In certain conditions, an early old-age pension can be granted at the age of 60, or as early as age 57;
The right to old-age pension is linked to the attainment of a specific age:
- beyond the age of 65: anyone having held at least 120 months of insurance, whether mandatory, continued, voluntarily or relative to a retroactive purchase, is entitled to an old-age pension;
- beyond the age of 60: anyone having held 480 months of insurance, whether mandatory, continued, voluntary, through retroactive purchases or the purchase of additional periods, including at least 120 months of insurance, whether mandatory, continued, voluntary or through retroactive purchases, is entitled to an early old-age pension;
- beyond the age of 57: people having held 480 months of mandatory pension insurance are entitled to an early old-age pension.
Those receiving an early old-age pension are within their rights to continue engaging in a professional activity, but the latter may influence the granting and calculation of the pension. On the other hand, after 65, professional activity and pension can be combined with no restrictions whatsoever.
To avoid delays, it is important to file the request for the old-age pension with the competent organisation around 2 months before the date of eligibility. Social security benefits, of whatever type, are only grant upon formal application by the parties concerned.
The normal old-age pension falls due on the insured party's 65th birthday or, if the conditions of attribution are met only later, then from that date onwards.The early old-age pension only falls due on the day after the expiry of the insured's rights to their professional income. For the application of the above stipulations, every day of the month in which the pension starts is counted uniformly for one 30 th of the month.
Old-age pensions are paid monthly in advance, and cease to be paid at the end of the month of the beneficiary's death.
How to proceed
Conditions of allocation
The benefits are calculated on the basis of the insurance history, which includes periods of mandatory insurance and equivalent insurance periods. These periods are taken into account both for establishing eligibility for pension (contribution period) and for calculating its amount (proportional mark-ups and flat-rate mark-ups).
Mandatory periods of insurance
These are periods of activity for which the contributions have been paid – e.g.
- employed or self-employed professional activity;
- unemployment benefit, sickness or maternity benefit, and early retirement;
- apprenticeship as part of professional training after 15 years;
- parental leave and baby-years (on condition that the worker is a Luxembourg resident);
- agricultural activities engaged in by the spouse or partner, parents and partners under certain conditions;
- aid and charitable care for a dependent, in a non-professional capacity;
- activities for the benefit of the sick, and for the greater good, by members of religious associations and similar persons;
- activities in a developing country in the context of development aid;
- war, military service, peacekeeping operations;
- day and night placement of children by an accredited organisation in the sphere of social work, family care and therapy;
- youth volunteering activities organised by not-for-profit NGOs;
- working time spent by disabled persons in sheltered workshops;
- high-level sporting activity.
Equivalent insurance periods (additional periods)
Equivalent periods are not covered by contributions, but they can be used to make up the 40-year contribution period required for retirement at 60, provided they do not conflict with another pension scheme, either in Luxembourg or abroad.
These periods include:
- years of study and professional training between the ages of 18 and 27;
- periods of disability benefit;
- years of raising a child under 6 years old (this period of education is raised to 8 years in the case of two children, to 10 years when the individual has three children, and to 18 years if the child suffers from a physical or mental defect);
- periods of non-payment when the unemployed young person is not yet entitled to unemployment benefit;
- periods of insurance corresponding to self-employed professional activity, exempt from contributions before 1 January 1993;
- periods of professional activity in the Grand Duchy of Luxembourg prior to the establishment of the old contribution-based pension schemes, or exempt from mandatory insurance because of the legal regulations applicable to those schemes, provided those periods do not otherwise confer the right to benefits, and up to a maximum of 15 years;
- periods between 1 January 1990 and 31 December 1998 when a person provided care to the recipient of a healthcare benefit, a special benefit for severely handicapped persons, an increase in accident pension for incapacity to work, or a supplement on top of the social minimum wage;
- periods of professional activity subject to insurance under the legislation of the country of origin, for people having held the status of political refugee before acquiring Luxembourgish nationality, provided they are excluded from receiving benefits from any international or foreign regime;
- periods during which the disabled worker was unable to work in a sheltered workshop, for reasons beyond their control, and periods before this law entered into force, when the individual was 18 or more years of age and unable to earn a living due to physical or intellectual disabilities.
Equivalent insurance periods only count towards completing the contribution period required for early old-age pension (after 60), and for the minimum pension, and for the purposes of acquiring flat-rate mark-ups on pensions.
Periods of continued insurance
In case of discontinuation of the mandatory insurance, the person in question may, at their own expense and within 6 months of their deregistration, request the continuation of their pension insurance, if they have 12 months of mandatory insurance contributions over the previous 3 years.
This arrangement enables people who lose their insured status—for any of a variety of reasons—to avoid a financial loss in terms of their retirement.
The insured individual can enjoy such insurance at a "reduced cost" for a limited period of 5 years, during which the minimum threshold for contributions will only be a third of the monthly social minimum wage for an unskilled worker of at least 18 years of age;.
Periods of voluntary insurance
Residents of less than 65 years of age who have reduced or interrupted their professional activity for family reasons (marriage, raising of a child under 15 years old, or caring for a dependent) can take out voluntary insurance if they are not eligible for continued insurance.
The affected individual must prove they have worked for at least 12 months at some point in their lives, and that they are not entitled to a personal pension. That insurance may be taken out at any time, but is not retroactive.
The insured individual can enjoy such insurance at a "reduced cost" for a limited period of 5 years, during which the minimum threshold for contributions will only be a third of the social minimum wage for an unskilled worker of at least 18 years of age.
Retroactive purchasing of insurance periods
Residents under the age of 65 years of age having accrued at least 12 months of mandatory insurance and not holding a personal pension can retroactively purchase the following periods (if they occurred after the age of 18):
- years of marriage;
- years of raising a child under 15;
- care for a recognised dependent or handicapped person;
- time spent as a subscriber to a non-recognised foreign pension scheme.
The normal retirement age is legally set at 65. The employment contract of an employee entitled to pension expires at that age, with no notice period being necessary.
However, it is possible to retire at the age of 57, under certain conditions. Therefore, one must distinguish between normal old-age pension and early old-age pension.
Normal old-age pension
To qualify for the so-called normal old-age pension, workers must:
- have reached the age of 65;
- have contributed over at least 10 years (120 months) to the old-age insurance scheme, whether mandatory, continued, voluntary or relative to retroactive purchasing of periods of insurance.
Months of insurance contributions in other European countries are also taken into account.
If the insured party has fewer than 10 years insurance contribution upon reaching the age of 65, they can:
- continue their professional activity with the same employer (in which case, the pension will fall due upon completion of the mandatory contribution period);
- request to be reimbursed in the amount of their contributions through salary or through the employer, adjusted for inflation.
Early old-age pension
It is possible to take early retirement:
- at the age of 57: if the insured party has accrued 480 months (40 years) of mandatory insurance contributions;
- at the age of 60; if the insured party has accrued 480 months of insurance (mandatory, continued, voluntary, retroactive purchases, or purchases of additional periods), including at least 10 years (120 months) of insurance, whether mandatory, continued, voluntary, or through retroactive purchases.
Employees who have reached retirement age are wholly within their rights to give up professional life. Employees are not required to inform their employer of their retirement or to give notice.
Early pension is not to be confused with early retirement, which may also be taken at the age of 57.
Procedures and competent bodies and administrations
Application for old-age pension
In the context of the general pension scheme, old-age pension is awarded only upon formal application from the receiver. Application forms can be obtained from the National Pension Insurance Fund (Caisse nationale d’assurance pension - CNAP), the National Health Fund (Caisse nationale de santé - CNS), commune administration centres, or can be downloaded. These forms, correctly filled in and duly signed, must be sent to the CNAP.
If the insured party claims equivalent contribution periods subsequent to several years of study, they must also provide a copy of their diploma or an enrolment certificate from the educational institution in question.
If, before the introduction of the single status and the merging of the private-sector pension funds, the applicant was registered with multiple pension funds during their professional career, the application is to be sent to the CNAP. Depending on the complexity of the files, it is advisable to file the application 2-6 months before you become legally entitled to pension.
In the case of cross-border workers, the application must be filed with the relevant organisation in the country of residence, in compliance with the legal stipulations.
Application to join continued/voluntary pension insurance scheme
The application forms to join the continued/voluntary pension insurance scheme are available from the CNAP, the CNS, and communal administration offices, or can be downloaded. The application should be submitted either to the Centre commun de la sécurité sociale (Joint Social Security Centre), or to the CNAP.
Conditions of acceptance for continued insurance
- having accrued 12 months of mandatory insurance during the 3-year period prior to losing the mandatory insurance coverage (in case of membership of an insurance scheme abroad, applicants must give details of the relevant pension insurance scheme);
- in case of loss of mandatory insurance coverage, the application must be filed within 6 months of the event.
Conditions of acceptance for voluntary insurance
- residence in the Grand Duchy of Luxembourg;
- favourable opinion after having taken the social security medical exam (for persons who fail to meet the conditions of acceptance for continued insurance);
- reduction or discontinuation of professional activity for family reasons (periods of marriage, periods of raising a child under 15, periods of providing care or aid to a recognised dependent);
- less than 65 years of age;
- non-entitlement to a personal pension;
- accrual of 12 months of mandatory insurance.
Amount of pension
The CNAP shall accept an application to estimate the level of a pension if and only if the applicant is over the age of 55. At that time, it is helpful for the applicant to give a full account of their secondary and tertiary education and professional career, providing the necessary documents as proof (certificate of education or diploma for studies undertaken after the age of 18, job record for work outside of Luxembourg, etc.). The time required to process an application to estimate the level of a pension depends on the complexity of the application. Processing can take between one and three months, or even six months in particularly complex cases.
Index number and base year
An old-age pension comprises a flat-rate mark-up and a proportional mark-up.
The level of pension under the general scheme depends on:
- the length of the individual's professional career;
- the salary received over the course of the individual's insurance history;
- the ceiling on earnings subject to contributions (i.e. the amount beyond which declared salary is not longer taken into account in calculating pension, which is five times the social minimum wage).
Using these data, the pension is calculated on the basis of the report established yearly by the pension fund. Thus, it is important to check whether the amount stated on the report actually corresponds to the declared annual salary. The following play a part in this calculation:
- The index number 100;
- the base year 1984;
- the adjustment of current pensions for inflation, cost of living, average level of salaries and wages (flat-rate and proportional mark-ups), but this is likely to be tempered by a moderating factor if the pension insurance fund's expenses exceed its income from contributions;
- appreciation of salaries at the time of granting of the old-age pension, regardless of the fund's financial status.
The amount of pension is increased if the applicant is in receipt of a benefit in kind (for example, the leasing of a vehicle). As the benefit in kind is subject to pension contributions, its value is taken into account when calculating the pension, within the limit of the ceiling on earnings subject to contributions – i.e. five times the social minimum wage.
Duration element: flat-rate mark-ups
The flat-rate mark-up is granted on the basis of the length of the individual’s insurance record, irrespective of their level of income.
In calculating that duration, the years of insurance contributions, whether mandatory, equivalent, continued, voluntary, and those retroactively purchased.
For an insurance record of 40 years (the maximum duration), in 2013, the flat-rate mark-up was 23.5 %, but will increase to 28 % by 2052, based on the legal reference amount – i.e. EUR 489.98 per year at the index base 100, with base year 1984. This amount is the same for each insurance holder. For each year missing from the complete 40-year history, 1/40th of EUR 489.98 – i.e. EUR 12.25 – is deducted. However, every year begun is treated as an entire year.
Contributory element: proportional mark-ups
The proportional mark-up sets a proportional amount (pro rata) of all annual income declared throughout the individual’s insurance history, evaluated on the index base 100, with base year 1984.
In 2013, the proportional mark-up rate was 1.85 % of the insured individual's total professional income, but this will be reduced to 1.6 % by 2052. Depending on the applicant's age and professional history, this rate may be increased, on certain conditions which will be gradually relaxed for beneficiaries having reached the age of 55 (60 in 2052) and having accrued 38 years (40 years in 2052) of contributions, whether mandatory, continued, voluntary, or through retroactively purchasing periods not worked. The rate may therefore be up to 2.05 % of the total professional income.
Unlike the flat-rate mark-up, the declared income taken into account may be for a period of more than 40 years. Years of equivalent insurance are not taken into consideration in calculating the proportional mark-up, as no salary would have been declared during those periods.
That proportional amount plus the flat-rate mark-up make up the gross annual old-age pension. In addition, beneficiaries will receive an end-of-year bonus (i.e. a 13th month, provided the fund's financial status allows for it).
Retirees over the age of 65 are allowed to engage in a full-time, paid professional activity. In such a case, they are free to receive both their pension and a salary.
In case of early retirement, i.e. for a person retiring under the age of 65:
- the early retiree may, as an employed worker, receive income of less than one third of the social minimum wage with no limitation;
- an early retiree receiving a salary of more than one third of the social minimum wage may:
- combine their legal pension and a salary, with no limitations whatsoever, provided the total does not exceed a ceiling set as the average of their five highest salaries subject to contributions during their insurance history;
- combine their legal pension and a salary, but if the total exceeds the average of their five highest salaries subject to contributions during their insurance history, then the legal pension will be reduced to bring the total back below that ceiling;
- an early retiree receiving income as a self-employed worker of more than one third of the social minimum wage per year will have their early pension cancelled.
Minimum and maximum amounts
Under no circumstances may an old-age pension be less than 90 % of the reference amount if the beneficiary has completed 40 years of insurance contributions. This sum is decreased by one 40th per missing year between the 20th and 39th years.
To qualify for the minimum pension, applicants must have accrued at least 20 years of insurance, including 10 years of mandatory, continued, voluntary or retroactively purchased insurance.
The maximum amount is five 6ths of the quintuple of the reference amount.