Article 111bis LIR, introduced into Luxembourg law in 1991, provides a framework for tax advantages linked to retirement savings. It allows taxpayers to deduct up to €3,200 a year from their taxable income, regardless of their age or family situation.
This provision applies to Luxembourg residents and cross-border workers who are assimilated for tax purposes (i.e. who file a tax return in Luxembourg).
Article 111bis LIR is part of an overall strategy to encourage long-term savings and complement the public pension system.
The supplementary pension contract is a life insurance contract subject to article 111Bis LIR and forming part of the 3rd pillar of the Luxembourg pension system.
This contract allows you to create an additional nest egg payable at the time of retirement. In order to benefit from tax deductions, the contract must meet certain conditions (non-exhaustive list):
- It must be taken out with an insurance company or a credit institution established in Luxembourg or authorised in an EU Member State and authorised to operate in Luxembourg.
- Be taken out for a minimum period of 10 years.
- The savings can be redeemed no earlier than age 60 and no later than age 75.
- The benefit may be payable as a lump sum payable in instalments, a life annuity or a combination of the two.
Premiums paid into an supplementary pension contract are tax-deductible when you file your tax return in Luxembourg.
The 2016 tax reform has considerably improved the attractiveness of supplementary pension policies. From now on, every taxpayer can deduct up to €3,200 a year from their taxable income, regardless of their personal situation. This measure applies to Luxembourg residents and cross-border workers filing tax returns in the Grand Duchy.
The benefits are not limited to the tax deduction. These contracts offer great flexibility:
- Choice of monthly or annual payments.
- Possibility of making additional payments.
- A variety of investment options, from guaranteed rates to investment funds.
At maturity, between the ages of 60 and 75, the capital built up can be received in the form of an annuity or a lump sum, depending on the policyholder's preferences.
In Luxembourg, the pension system is organised around three pillars:
- Pillar 1: compulsory, and financed by social contributions;
- Pillar 2: the pension scheme set up on the employer’s initiative for its employees, or for a category of its employees;
- Pillar 3: financed on a voluntary basis by premiums paid into a life insurance policy at the initiative of an individual.
Policies governed by Articles 111 L.I.R. and 111-bis L.I.R. come under this third pillar and may be tax deductible.
It is now common knowledge that an individual can no longer rely solely on Pillar 1, which may be subject to various changes in the future. An individual therefore runs the risk of seeing his pension reduced. The need to build up additional retirement capital is therefore becoming increasingly indispensable.
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Pension Plan is the pension policy from Baloise Assurances that enables you to save for your retirement while benefiting from the maximum tax deduction every year by the terms of Article 111-bis.
With Pension Plan you can invest for your retirement from EUR 50 per month. Indeed, Pension Plan is a flexible pension policy that may be paid for with monthly or annual premiums. It is also possible to contribute additional lump sums at any time.
Depending on your risk appetite, Pension Plan enables you to invest in sub-funds at a guaranteed rate, or in investment funds.
Contributions paid in the Pension Plan can be recovered from the age of 60 to 75 and the premiums are not subject to any tax but are tax deductible up to EUR 3,200.
The deductions which are possible thanks to the Pension Plan are also available to cross-border commuters, provided that they file a tax return in Luxembourg.
An employer group pension plan is a collective retirement savings scheme set up by a company for its employees. This supplementary scheme offers advantages for both employers and employees.
The company benefits from favourable tax treatment on its contributions, while at the same time making its remuneration packages more attractive.
If the employer has set up a pension plan for its employees, the employee can also contribute up to 1,200 euros a year. This personal contribution is also tax-deductible.
Article originally published in November 2021 and updated in November 2024.