Calculating early retirement allowance

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Acceptance for early retirement implies payment of an early retirement benefit to the employee, calculated on the basis of various criteria.

Who is concerned

Acceptance for early retirement and the related rights (such as the right to early retirement benefit) are only applicable to private-sector employees (except for early retirement of shift workers and night workers) meeting conditions for early retirement and employed by a business eligible for a form of early retirement.

For more information, please contact the Early Retirement Department at the Ministry of Labour and Employment and the Social and Solidarity Economy (ministère du Travail, de l'Emploi et de l'Economie sociale et solidaire), on Tel: (+352) 2478 6115 (mornings only) or fax: (+352) 2478 6325.

Prerequisites

By receiving an early retirement benefit, employees agree not to carry out any activity through which they earn more than half the social minimum wage per month applicable to them, otherwise they forfeit the right to the benefit.

How to proceed

How early retirement benefit is calculated

The monthly early retirement benefit is calculated using the gross monthly pay actually received by the employee in the 3 months immediately preceding their early retirement.

However, for workers affected by collective redundancy or dismissal for reasons not related to them, or cessation of a working relationship due to an employer's bankruptcy, who become eligible for early retirement during their period of unemployment, the monthly early retirement benefit is equal to the amount of the legally determined full-time unemployment benefit.

For employees who, on an exceptional basis, are granted early retirement for company restructuring starting 1 January of the third year preceding the one in which they qualify for an old-age pension or a premature old-age pension, the monthly early retirement benefit is calculated using the gross monthly pay to which the employee was entitled for the month in which they become eligible for early retirement in accordance with the first sub-paragraph of Article L. 582-2 of the Luxembourg Labour Code.

The same is also true when an employee is entitled to a pay rise taking effect less than 3 months prior to the granting of early retirement – i.e. scaled salary increases (two-yearly, promotions, recalculations of personnel salaries, implementations of collective agreements), provided the employee is actually on staff at the business at the time of the pay rise.

The following must be included in the reference pay used to calculate the monthly benefit:

  • sick pay;
  • standard incentives and extras;
  • bonuses and the 13th month at the level of one 12th per month.

Overtime pay and allowances for incidental expenses are not taken into account in this calculation.

For salaried employees whose pay includes a fixed and a variable portion, the early retirement benefit must be calculated based on a 12-month reference period for the variable portion of the gross pay received during this period, when this method of calculation is more favourable to the employee. On request, the reference period may be increased to 18 months.

In the case of gradual early retirement, the amount of early retirement benefit is adapted proportionally to the reduction of the employee's working time.

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.

The early retirement benefit must be adapted to changes in the cost of living, in accordance with the provisions of Article 11, paragraph (1) of the Law of 22 June 1963, as amended, setting the procedure for remuneration of civil servants.

Early retirement amount

The early retirement benefit must not exceed the monthly amount of the cap for contribution to pension insurance – i.e. 5 times the social minimum wage.

In the case of gradual early retirement, the benefit is adapted in proportion to the reduction of the employee's working time.

Duration of early retirement

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 benefit is equal to:

  • 85 % of the gross monthly pay received by the employee in the 3 months immediately preceding the allowance period for the initial 12-month period;
  • 80 % of that amount for a second 12-month period;
  • 75 % of that amount for the remaining until the expiry of the right to early retirement.

Employees who request and obtain early retirement do not qualify for legal severance pay.

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 contre les accidents - AAA) and the Children's Future Fund (Caisse pour l'avenir des enfants - CAE).

In principle, the early retirement benefit should be paid in advance by the employer; If the employer is having significant financial difficulties, the Employment Fund (Fonds pour l'emploi) will cover the payments.

Expiry of right to early retirement benefit

Entitlement to early retirement benefit automatically ends:

  • on the day when the concerned party becomes eligible for an old-age pension or a premature old-age pension, starting from 60 years of age;
  • on the day when the person entering early retirement becomes eligible, at their request, for a premature old-age pension or a disability pension;
  • on the day when the person in early retirement dies;
  • if they carry out or resume activity earning more than half the social minimum wage over one year.

Who to contact

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