Legal Alert – Draft Law: Pension Reform
Current framework: statutory retirement age
Article L.125-3 of the Labour Code provides that an employment contract automatically terminates on the date on which the employee is granted an old-age pension or an early old-age pension.
In Luxembourg, the statutory retirement age is 65. Any person who has completed 120 months of compulsory insurance, continued insurance, voluntary insurance or retroactive purchase periods is entitled to an old-age pension from the age of 65.
Early old-age pension
Two types of early old-age pension are available, provided that certain conditions are met:
- from the age of 57, where the insured person can demonstrate 480 months of compulsory insurance periods;
- from the age of 60, where the insured person has completed a qualifying period of 480 months comprising compulsory insurance, continued insurance, voluntary insurance, retroactive purchase periods and supplementary periods, including at least 120 months of effective insurance periods.
Cross-border or international situations
Periods of insurance or employment completed in another Member State are taken into account as insurance periods for entitlement to benefits in Luxembourg, pursuant to the EU principle of aggregation of insurance periods.
More specifically, each Member State in which the employee has been insured for at least one year must pay a pension corresponding to the insurance periods completed in that State. Where the one-year period has not been completed, the person may instead be entitled to reimbursement of the social security contributions paid in the relevant State.
Accordingly, in order to qualify for an old-age pension in Luxembourg, the person concerned must have completed at least one year of insurance in Luxembourg and at least ten years in total when insurance periods completed in another European Union country are taken into account.
EU legislation further provides that the pension is calculated in each Member State in accordance with its own legislation and on the basis of the person’s insurance record in that State.
From a practical perspective, the eligibility conditions for a pension must therefore be met in each State before that State is required to pay a pension.
There is currently no harmonisation at EU level regarding retirement age, meaning that significant differences may exist between countries as to the age at which an old-age pension becomes payable.
The new legal framework: Bill No. 8634
The European Commission’s institutional report on economic and budgetary projections for EU Member States in relation to population ageing states that, in Luxembourg, the average effective labour market exit age was 60.7 in 2022 and is projected to reach 60.8 in 2030.
With the aim of bringing the effective age of early retirement closer to the statutory retirement age, while maintaining the statutory retirement age at 65, the Bill provides for the following measures:
- An increase in the overall contribution rate from 24.0% to 25.5% from 2026;
- An extension of the compulsory insurance period by a total of eight months by 2030, bringing the total to 488 months;
- The introduction of a progressive pension scheme based on the rules currently applicable in the civil service;
- Greater flexibility in taking into account periods of study and vocational training, not remunerated under an apprenticeship, over the course of a full pension insurance career, up to a maximum of nine years.
The legislative process must be closely monitored
Ultimately, the Bill is intended to extend insured persons’ working careers while taking into account the realities of the Luxembourg labour market.
However, the legislative process will need to be monitored closely in order to take into account any amendments made before the Bill is finally adopted.
➡️ For any questions, please contact Marie Bena, Elodie Rousseau or Ilaria Cendret.