Bill No. 8634 passed: key changes to Luxembourg’s pension regime

1.Early retirement: gradual increase in the length of insurance periods

The currently required 480 months of insurance periods (including voluntary periods, study, and baby years) to qualify for early retirement at age 60 will be increased by a total of eight months by 2030, starting on July 1, 2026:

The conditions for early retirement at age 57 and onwards (480 months of compulsory insurance periods, i.e., excluding voluntary periods, study, and baby years) are maintained.

2. Insurance career: flexibility in recognizing study years

Up to nine study or training years received at any point during one’s career and without any age limit may be taken into account. As a result, career breaks for study and training purposes in adulthood, beyond the current age limit of 27, may be accounted for.

3.Social security contributions: increase in the overall contribution rate

A total increase from 24% to 25.5% will be shared between employers, employees, and the state from 2026 until 2032.

4. New progressive pension scheme: reduced working time with payment of a compensatory allowance

Focus on the new progressive pension scheme

Eligibility conditions for the progressive pension

To be eligible for the new progressive pension scheme, the employee must:

• meet the conditions for early retirement
• hold a position with a working time equivalent to at least 75% of a full-time position, for the past three years at the time of the application.

Progressive pension allowance

An employee admitted to the progressive pension scheme is entitled to a compensatory allowance. This will be:

• paid monthly by the employer at the same time as the salary
• fully reimbursed to the employer by the CNAP, (Caisse Nationale d’Assurance Pension—the National Pension Insurance Fund), including the employer’s share of social security contributions.

Direct payment by the CNAP will be possible in the event of collective redundancy or redundancy for economic reasons, or automatic termination of the contract, or at the employer’s request.

Step-by-step procedure

• An employee must notify their initial application to the employer in writing with acknowledgment of receipt at least four months before the desired start date (note: the start can only be set on the first day of a month). A CNAP certificate confirming the starting date of entitlement to an early retirement must be attached.
• The employer must answer within one month from notification of the application, taking into account the needs of the business and the employee.
• The employer must inform the staff delegation, if any, of any application for admission to the progressive pension scheme.
• If an agreement is reached, the employer and employee shall formalize the reduction in working time in an addendum to the employment contract, specifying, in addition to the reduction rate, the residual working time (minimum reduction of 25% of working time, minimum residual working time of 16 hours per week) and the effective start date.
• To be admitted to the progressive pension scheme, an employee must submit the addendum to the CNAP no later than two months before the reduction takes effect.
• The CNAP notifies admission to the progressive pension scheme no later than one month before it becomes effective.
• If the CNAP refuses, the addendum is null and void.
• If the CNAP approves, it informs the employer (no later than the fifth business day of the month) of the amount to be paid.

The changes come into force on January 1, 2026, with the exception of the gradual increase in the length of insurance periods in the case of early retirement, which will apply from July 1, 2026.

5.Pension-related tax measures

The following two tax incentives are being introduced to strengthen the pension system:

• Upon request, taxpayers who are eligible to retire but continue working benefit from a new tax allowanceof EUR9,000 per year or EUR750 per month (abattement de maintien dans la vie professionnelle). Thebenefit runs monthly, from the month the taxpayer would have been entitled to retire until the taxpayerretires or reaches the legal retirement age of 65. Eligibility must be certified by the competent pensionbody and submitted to the tax administration.
• The annual ceiling for tax-deductible contributions to individual retirement saving plans (contrat individuelde prévoyance-vieillesse) has been raised from EUR3,200 to EUR4,500, with the same enhanced capapplying mutatis mutandis to PEPP accounts (produit paneuropéen d’épargne-retraite individuelle).

Both tax measures will apply from tax year 2026.