Radical reforms support third pillar
Luxembourg’s government has taken a step forward in developing the country’s retirement system affecting both the first- and third-pillar pensions.
In July the government announced radical measures to reform the state pension that aim to provide higher basic pensions and incentives to retire later. Under the new legal framework the basic state pension of e300 a month has risen 11%, and the second element of the state scheme, a so-called proportional pension, has increased 4%.
As a measure to encourage later retirement, the government has decided to give salaries after the age of 55 a heavier weighting in calculating the lifetime average.
These incentives came only a few months after tax breaks for private pension schemes were introduced, aiming to promote the development of the third-pillar system. Under the new framework policyholders will be able, for the first time, to take up to half their entitlement in a lump sum on retirement and the remaining half on a life annuity, which will be subject to half the previous tax.
On the international arena, though the progress of ASSEPs and SEPCAVs, the international pension structures developed for the cross-border market, is slower than predicted, the interest in these vehicles is growing. Professionals in the market expect to see more companies finding in these Luxembourg-based pension plans a solution to making provision for their mobile employees in the coming months, following in the footsteps of multinational employers such as Unilever or KPMG.