Pension savings - All about pensions

Pension savings - All about pensions

Pension savings is the savings product par excellence for people wishing to build capital for their retirement.

Indeed, legal retirement is not necessarily sufficient to cover the costs and charges associated with it. This is why the pension savings insurance or the old-age pension insurance makes it possible to compensate for this risk and need.

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The pension system is currently based on three pillars: 

1st pillar: the national pension scheme

The first pillar is based on social security funds. The national pension scheme is largely funded by the national welfare programme on the principle of distribution without the need to have built up reserves.

However it is affected by demographic stability. This first pillar represents a kind of minimum social retirement income for the majority of the population.

Contributions paid today help to finance tomorrow’s pensions. They never go towards your own pension. 

2nd pillar: the workplace pension

The second pillar is better known by the term “Pension Plan»”. It is directly linked to a job or a profession.

It is a supplementary pension set up by the company for their staff. Welfare no longer plays a central role, the preferred criteria being intergenerational equity and macro-economic efficiency.

Second pillar schemes are funded by capitalisation and are managed by private organisations such as life insurance companies.

Funds are not guaranteed by the State but are governed by the law of 8 June 1999 on "Supplementary Pension Schemes established by Employers".

It is this same law that outlines the tax incentives for personal contributions paid by the employee to top up employer funding. 

3rd pillar: private pension plans 

The third pillar is a complementary savings and pension product.

It's based on a personal savings or an insurance policy: everyone pays the premiums established in a personalised contract.

Welfare gives way to the sharing of risk. It is no longer a profession that determines the individual plan, but financial efficiency.

The great attraction of the third pillar are the tax advantages which the legislators have granted to the "pension planning" system.

2. Pension plan: its new fiscal framework

Legal framework for the new pension regime

By implementing the Grand Ducal Regulation of 25 July 2002 giving effect to article 111a of the tax law, the legislator has decided to implement new tax incentives.

The purpose of this is to encourage individuals to establish an individual pensions savings plan.

Some facts:

  • the value of the state pension will be much lower than your final salary. Faced with the demands of modern life it will be difficult to have to live on less during your retirement;
  • the issue of funding pensions has become the subject public debate both in Luxembourg and abroad;
  • uncertainties about demographic change and economic growth is clearly reflected on the balances of pension schemes.
  • This is why the funding of pensions for future generations has generated a heated debate on the 700,000 inhabitants projected by 2050.

You must take the initiative and act now

3. Pension plans: tax deductions

You can benefit from a large annual tax reduction on your taxable income with a "PENSIONS" policy. Deductible premiums vary depending on your age at the start of the tax year:

Age Maximum annual deductions limit
Under 40 1,500 euros
Between 40 and 44 1,750 euros
Between 45 and 49 2,100 euros
Between 50 and 54 2,600 euros
Between 55 and 74 3,200 euros

If you like, deductible premiums can be automatically adjusted to your age at the beginning of the tax year. 

The benefits you receive are taxed as follows: 

  • Only half of your annuities are taxed; 
  • Single lump-sums are subject to a reduced tax rate 

Calculate : how much is your pension worth ?

We organise regular conferences on pensions to help you find out how much your pension is worth

We also run a free pensions check to tailor the results to your situation.

Your situation will be thoroughly reviewed and you will leave the meeting knowing all the options available to you.

What kind of products are there ?

1. Fixed interest pension plan

With a personal pension plan you can opt for two types of savings. The first is to invest in a fixed rate product. This product lets you build up a capital established at the start of your policy.

The advantage is that you know in advance what your pension will be worth. The annuity associated with this capital will be calculated when your policy matures.

2. Equity pension plan

The second option for your pension savings is an equity fund investment. In this case the investor will receive a monthly annuity for the rest of their life. This annuity will be calculated at the end of the policy based on the accrued capital.

The investment has no limit until you reach 45. After that, the portion invested in shares is limited to offer maximum security when your policy matures. There is no guaranteed amount with this type of product since it is invested on the stock market and fluctuates according to stock prices.

Age at start of tax year Maximum portion of pension invested in stocks
Under 45 no limit
from 45 to 49 75% of accrued savings
from 50 to 54 50% of accrued savings
55 and over 25% of accrued savings

 

Weicker & Co is an Authorized broker with the Belgian FSMA under the reference 62429 and Belgian company number 0893.901.520. Our brokerage company is authorized to perform free service in Luxembourg.