Reminder: supplementary pension schemes

The Chamber of Deputies of the Grand-Duchy of Luxembourg adopted on 1 August 2018 a law (hereinafter “the Law”) modifying the law of 8 June 1999 on supplementary pension schemes. The Law aims at implementing a European Directive of 16 April 2014 on supplementary pension rights[1] (hereinafter “the Directive”).

The Law will come into force on 1 January 2019, with the exception of the provisions of article 8 on the acquisition of rights, which came into force on 21 August 2018.

Extension to the self-employed and liberal professions

Pursuant to the law of 8 June 1999 on supplementary pension schemes, the establishment of supplementary pension schemes is currently limited to employees whose employer has set up a supplementary company pension scheme.

The Law provides for the establishment of specific supplementary pension schemes, which may collect pension contributions from self-employed workers only if they have been previously approved by the General Inspectorate of Social Security (“Inspection Générale de la Sécurité Sociale).

The tax framework will therefore be adapted. As for employees, self-employed persons will be entitled to a tax deduction from their contributions to the scheme as special expenses. This deductibility is limited to 20% of the net annual income. In addition, as with employer contributions paid by a company to an employee, contributions paid by a self-employed person to a supplementary  registered pension scheme will also be subject to a flat-rate “entry” tax of 20% as an income tax deduction.

Acquisition of rights

The period for acquiring rights to a supplementary pension is currently ten years pursuant to the law of 8 June 1999. According to article 9 of the Law, this period may now not exceed three years.

More specifically, for members who started working after 20 May 2018, the total cumulative period of the acquisition period and any waiting period may not exceed three years. For members who entered service before 21 May 2018, the total cumulative period of the acquisition period and any waiting period may not exceed ten years or extend beyond 20 May 2021.

Protection of member’s rights in the event of departure or changes to the supplementary pension scheme

The law of 8 June 1999 only provides that the maintenance of acquired rights must be guaranteed. The Law now specifies the treatment of a member’s acquired rights in the event of early retirement or modification of the scheme.

If acquired rights are maintained, the Law now specifies the rules designed to determine the value of the acquired rights when the members chose to maintain them in the system used by their previous employer until they retire. In addition, the Law stipulates that when they leave the company, outgoing members must be able to opt for the repayment of their acquired reserves in the event of death before retirement age, while accepting a possible recalculation of the value of their acquired benefits;

Regarding the transfer of rights, acquired rights may be transferred to another supplementary pension scheme set up with another company or group of companies, transferred to another company scheme or transferred to a supplementary registered pension scheme or redeemed. However, the transfer of acquired rights to a life insurance company is no longer allowed by the Law. The Law also specifies that in the absence of the member’s consent, rights acquired under a defined benefit scheme may only be transferred to a defined benefit scheme guaranteeing retirement benefits at least equal to the transferred acquired rights.

Regarding the redemption of rights, in the event of termination of an employment contract with an employer at an age exceeding 50, the possibility of redeeming, i.e. benefiting from its supplementary pension capital, is now limited to two situations:

  • if the acquired reserves have not exceeded an amount equivalent to three times the nonqualified monthly minimum social wage, i.e. EUR 6,145.62 (index 814,40 on 1 August 2018);
  • if the worker is no longer subject to Luxembourg health insurance. The redemption will be possible regardless of the amount of the acquired reserves.

Finally, the Law clarifies the treatment of acquired rights in the event of a transfer of undertakings, and provides in particular that such transfer may not result in any reduction of these rights.

Information of the outgoing member

The employer’s obligation to provide information is extended. The Law now specifies and supplements the list of data that must be communicated in writing to members at least once a year.

The Law also provides that the company is now obliged to communicate in writing to the member who so requests, the possible consequences of a termination of employment on his supplementary pension rights. The Law also requires the employer to inform an outgoing member of the choices available to him regarding the destination of his acquired reserves, and of the conditions of treatment of the acquired reserves in the event of maintenance of acquired rights. This information must be given within 30 days of the member’s departure.

[1] Directive 2014/50/UE of the European Parliament and of the Council of 16 April 2014 on minimum requirements for enhancing worker mobility between Member States by improving the acquisition and preservation of supplementary pension rights.