When early retirement is taken, the working relationship is terminated by mutual agreement, which is formalised by a special agreement between the worker and their employer. Under this agreement, the employer may agree to pay part of the worker's early retirement allowance.
Early retirement should not be confused with an early old-age pension: old-age pension is drawn from the pension insurance fund, whereas early retirement is limited to 3 years. It is treated in the same way as insurance years that are taken into account when determining the amount of the legal pension entitlement.
Who is concerned
Early retirement and the rights and entitlements associated with it (such as the early retirement allowance) are available to private-sector employees who:
- meet the eligibility criteria for one of the following forms of early retirement:
- are employed, where applicable, by a business that is eligible for one of these forms of early retirement. It should be noted that early retirement for shift workers and night workers is an individual right. Thus, the business that employs them does not need to be made eligible for this early retirement scheme.
By receiving an early retirement allowance, the worker undertakes not to engage in any other activity which brings them an income which, over course of a calendar year, exceeds half the monthly social minimum wage to which they are entitled. If they fail to abide by this condition, they lose their entitlement to the early retirement allowance.
How to proceed
How early retirement allowance is calculated
The monthly early retirement allowance is calculated on the basis of the worker's average gross pay for the 12 months immediately preceding early retirement. It is capped at 5 times the social minimum wage for unskilled workers.
The following components are taken into account in the reference salary used to calculate the monthly early retirement allowance:
- gross monthly salary;
- sick pay;
- standard incentives and extras;
- the 13th month at the level of one 12th per month;
- the average bonus taken over the last 3 years, at the level of one 12th per month;
- compensatory benefit for redeployment within the company;
- temporary re-employment support;
- loss of earnings by the employee over the reference period owing to partial unemployment or a weather-related layoff, or in the event of an accident or technical issues causing a layoff.
The following components are excluded from the reference salary:
- overtime; and
- any indemnity for expenses incurred.
Upon request, the reference period may be extended to 18 months, by a decision of the minister responsible for employment.
When the first payment of early retirement benefit is made, the employer will provide the beneficiary with a detailed account of the way in which the benefit has been calculated.
Early retirement amount
The early retirement allowance is capped at 5 times the social minimum wage.
In the case of progressive early retirement, the benefit is adapted in proportion to the reduction of the employee's working time.
The duration of early retirement cannot exceed 3 years, and the payment is spread out over this period with a progressive annual decrease of 5%. Thus, the allowance is equal to:
- 85% of the reference salary, as defined above, for the first 12-month period;
- 80% of the reference salary, as defined above, for the second 12-month period;
- 75% of the reference salary, as defined above, for the remainder of the period, until the entitlement to the allowance expires.
The early retirement allowance given to employees who meet the eligibility criteria for one of the early retirement schemes during periods when they are in receipt of full unemployment benefit is equal to the unemployment benefit paid by the National Employment Agency (Agence pour le développement de l'emploi – ADEM) for the whole of the person's entitlement to early retirement allowance.
Social security and tax contributions
Since it is not a pension, the early retirement allowance is subject to social security and tax charges generally applicable to remuneration and salary except for premiums due to the Accident Insurance Association (Association d’assurance accident – AAA) and the Children's Future Fund (Caisse pour l'avenir des enfants – CAE).
Recipients of an early retirement allowance are treated in the same way as pension recipients in relation to their membership and level of contributions for health insurance. During the period of their early retirement, the employees continue to pay contributions to pension insurance.
In principle, the early retirement benefit should be paid in advance by the employer. However, the payments will be made by the Employment Fund (Fonds pour l'emploi) if:
- the employer finds themselves in major financial difficulty; or
- the employer is declared bankrupt; or
- the employer enters into compulsory liquidation.
Expiry of right to early retirement allowance
Entitlement to early retirement allowance automatically ends:
- on the day when the person turns 63, thus becoming eligible for an early old-age pension.
It is possible to extend the early retirement allowance beyond the age of 63 when the recipient is not entitled to an early old-age pension at 63. Also, early retirement allowance can continue up to the age of 65, subject to certain conditions, in the context of early retirement for corporate restructuring;
- on the day when the person becomes entitled to a disability allowance;
- on the day when the person taking early retirement dies;
- if they practise, or resume, an activity which brings them an income which, over the course of a calendar year, exceeds (per month) half of the social minimum wage to which they are entitled.
Under no circumstances may early retirement be combined with any form of pension, paid by a pension provider in Luxembourg or abroad.
Good to know
For more information, please contact the Early Retirement Office at the Ministry of Labour, Employment and the Social and Solidarity Economy (Ministère du Travail, de l'Emploi et de l'Économie sociale et solidaire):
- by phone on:
- by e-mail at: firstname.lastname@example.org;
- by fax on: 247-86325.
Who to contact
Ministry of Labour, Employment and the Social and Solidarity Economy26, rue Sainte Zithe
Fax : (+352) 247-86108