Historical overview of the general pension insurance scheme
The introduction of social security in Luxembourg only took place at the beginning of the 20th century. At a time when the country was linked to Germany within the framework of the Zollverein, the social security system established in the Grand Duchy was strongly inspired by the German social insurance model. It was the law of 6 May 1911 that introduced the first compulsory pension insurance scheme for workers as well as for private employees whose annual income did not exceed 3,750 francs at the time. The circle of insured persons was progressively expanded thereafter:
to all private employees in 1931;
to craftsmen in 1951;
to farmers in 1956;
to traders and industrialists in 1960;
to self-employed intellectual workers in 1964.
The law of 10 April 1951 introduced the adjustment of pensions for workers and private employees to the price index. The sliding wage scale is also provided each time a scheme is created for craftsmen, farmers, traders and industrialists, and finally, self-employed intellectual workers.
The minimum pension was introduced by the law of 24 April 1954.
The Single Law of 13 May 1964 is one of the most important in the field of contributory pension insurance (A contributory pension scheme refers to a system where pension entitlement is directly linked to the contributions paid by the insured person or their employer during their working life.). It notably introduced the principle of adjusting pensions to the real wages. Substantial improvements were obtained by the law of 25 October 1968, which introduced special increases in the case of invalidity 3 or early death in the contributory pension schemes. (See section ‘Indexation, revaluation and readjustment’ as well as ‘The lump-sum and proportional increases’)
The law of 23 May 1984 introduced a generalised risk-sharing community encompassing the four contributory schemes and fundamentally modified the financing system applied. The former financing system consisted of an interweaving of systems based on both funded and pay-as-you-go schemes, systems which were no longer applied in accordance with their definitions. At the time of the financing reform, more than 50% of benefits were explicitly financed by a pure pay-as-you-go system and the remainder of benefits fell under funded systems, but for which the required reserves had not been fully constituted. (See section ‘The difference between pay-as-you-go and funded schemes’)
Insofar as the law maintained the administrative structure of the four pension funds, the risk-sharing community was achieved through compensatory transfers between the four funds. The mixed nature of the sources of financing was preserved, meaning that the charges of the scheme were covered, on the one hand, by contributions levied on the professional incomes of the insured persons and, on the other hand, by a direct participation of the public authorities.
The evolution of the harmonisation and standardisation of the contributory pension schemes was completed with the law of 27 July 1987. This law created a single contributory pension insurance scheme in the event of old age, invalidity and death for private-law employees by merging the four contributory pension schemes. The management autonomy of the pension funds was maintained as they remained competent for the socio-professional groups covered by them. This law introduced a new formula for calculating pensions providing for the full adjustment of the pension to the evolution of the real wages and including a temporary structural increase in pensions of 7% – an increase that would ultimately prove to be permanent. Furthermore, it achieved multiple improvements in well-defined concrete situations (occupational invalidity for workers, survivor’s pension, minimum pensions, baby-years).
The law of 24 April 1991, aimed at improving pensions under the contributory scheme, transformed the temporary increase in pensions of 7% into a structural increase and added an additional structural increase of 4% to the proportional increases and of 10% to the lump-sum increases. It also lowered the age for the early old-age pension to 57 years and reduced the delay in adjusting pensions to the real level of wages. The contribution ceiling was raised from 4 to 5 times the social minimum wage. (See section ‘The proportional and lump-sum increases’ as well as ‘The contribution base’)
The law of 28 June 2002 was passed following a study carried out by the International Labour Office in Geneva and a consultation of Luxembourg’s key stakeholders, gathered around the Rentendësch. This law proceeded to increase the lump-sum increases and the proportional increases, as well as to introduce a partially staggered increase in the latter based on the insured person’s age and duration of contributions. The situation of beneficiaries of low pensions was improved by this law through an increase in minimum pensions and improvements to the law on the guaranteed minimum income. The law also introduced an end-of-year allowance for pension-ers. Finally, it valorised children’s education through the revision of the provisions concerning baby-years and the introduction of a child-rearing allowance (‘Mammerent‘) for any parent who had devoted themselves to raising a child, provided that their pension or that of their spouse did not include baby-years. (See section ‘The end-of-year allowance’ and ‘The child-rearing allowance (“Mammerent”)’)
The law of 13 May 2008, introducing a single status, put an end to the distinction between the socio-professional categories of private employees and workers in terms of social security and labour law. The single status therefore led to the merger of the various healthcare and pension funds for employees falling under the general scheme, giving rise to the National Health Fund (CNS – Caisse nationale de santé) and the National Pension Insurance Fund (CNAP – Caisse nationale d’assurance pension).
The law of 21 December 2012 reformed the pension insurance schemes in a significant manner. Indeed, the new law resulted in a significant decrease in the level of pensions for insured persons retiring from 2013 onwards. This decrease is essentially due to a gradual reduction in proportional increases by 2052, which is far from being compensated by the progressive rise of lump-sum increases. This reduction is coupled with a foreseeable downward modulation of the adjustment of pensions to real wages as well as a foreseeable abolition of the end-of-year allowance. For an identical contribution period, a retiree must, compared to 2012, settle for a pension approximately 13% lower, unless they accept an extension of their working life.
Finally, the law of 19 December 2025 made several substantial amendments to the general scheme. Although it enacted an increase in the contribution rate – raising it from 24% to 25.5%-, the law placed emphasis on raising the effective pension age. The restriction of the conditions for taking an early old-age pension from the age of 60 constitutes a considerable deterioration for the insured. Indeed, in order to enter early old-age pension with the consideration of periods other than compulsory ones, the insured person is now required to extend their career. This required extension increases progressively until reaching 8 months for retirements in 2030. The consideration of study periods in a flexible manner after the age of 18, without conditioning them on a maximum age, constitutes in practice the only improvement to the system resulting from the reform.
(last updated on 22.07.2026)
The different pension schemes in Luxembourg
In Luxembourg, the public pension system is based on different schemes applicable according to the status of the insured persons.
The largest pension scheme is the general pension insurance scheme, which applies to all self-employed persons and private-law employees. The general scheme is managed by the National Pension Insurance Fund (CNAP – Caisse nationale d’assurance pension) and governed by the Social Security Code.
In parallel, there are statutory schemes covering notably the agents of the State civil service, the municipal administrations, the Central Bank of Luxembourg and the Luxembourg national railway company (CFL). Since the law of 3 August 1998, these schemes distinguish between agents who took up their duties before 1 January 1999 and those who entered into service from 1 January 1999 onwards. Before this law, the pension was calculated on the basis of five-sixths of the last salary received.
For agents in service before 1999, the special transitional scheme, governed by the amended law of 25 March 2015, applies: the calculation remains based on the last salary, but the replacement rate progressively deviates from five-sixths, unless the agent delays retirement. For agents who entered into service after 1998, the special scheme, governed by the law of 3 August 1998, applies: the pension is calculated, with a few exceptions, according to the same principles as in the general scheme, namely on the basis of the entire professional career.
THEMATIC BOX I: PENSION INSURANCE IN 3 PILLARS
In a World Bank publication in 1994 10, reference was made to the organisation of a pension insurance system according to a model based on three pillars, namely:
A first pillar, public and compulsory, with the sole objective of preventing poverty;
A second pillar, private and compulsory, based on capital cumulation and organised either individually or collectively through employment, aimed at ensuring an adequate pension beyond the minimum provided by the first pillar;
A third pillar, private and voluntary, based on capital accumulation, intended to provide additional protection for insured persons wishing to supplement their pension.
Since this publication, the notion of the three pillars has been widely adopted in the politico-economic debate.
In the Luxembourg context, the first pillar, comprising the public pension schemes, both general and statutory, constitutes the central pillar of the pension insurance system. It is more akin to a Bismarckian system, providing replacement income to insured retirees, than to a Beveridgian system whose objective would be limited to guaranteeing a minimum standard of living. This first pillar is the subject of an in-depth analysis in the present publication.
The second pillar, in the Luxembourg context, corresponds to the complementary company pensions governed by the amended law of 8 June 1999. These complementary company pensions may be estab-lished by the employer for the benefit of all or part of their employees.
The employer contributes either through provisions entered in their balance sheet, or via external private structures, such as pension funds or insurance contracts. The amount of this contribution falls within the employer’s decision in accordance with the conditions laid down by the police of the pension regulation, but the expenses incurred are only tax-deductible for the company up to a limit of 20% of the employee’s ordinary salary.
If the rules governing the complementary company pension so provide, the employee has the option of contributing to its financing – and may deduct their contributions for tax purposes up to a maximum of 1,200 euros per year.
As the employer is required to pay, at the time of the capital constitution, a withholding tax of 20% of contributions 13, the provision of the accumulated capital at the time of retirement is completely exempt from tax. The pension capital is, however, subject to the long-term care insurance contribution (1.4%) for insured persons affiliated to Luxembourg social security.
ATTENTION: For insured persons falling under the social security system of another country, notably when they receive professional or replacement income from that same country, the pension capital may be subject to social contributions in that country. (See section ‘Affiliation to healthcare insurance’)
This is notably the case for persons insured in Belgium, France and Germany.
The third pillar of pension insurance corresponds, in the Luxembourg context, to the old-age provision pension plans which may be contracted on a voluntary and individual basis by persons in order to build up a certain capital. These old-age provision plans, which are linked to certain conditions – notably the duration or the time of the provision of the capital – are fiscally encouraged insofar as the contributions made to them may be deducted for tax purposes as special expenses up to a maximum of 4,500 euros per year. This deductible ceiling was increased by the law of 19 December 2025 – before 2026, it stood at 3,200 euros.
If the benefits arising from the old-age provision plan at the normal maturity of the old-age provision contract are paid in the form of a lump-sum capital or in the form of capital instalments, these are taxed at the half of the global tax rate. Conversely, if the benefits are paid in the form of a life annuity at the normal maturity of the contract, they are exempt for 50% – the remaining 50% being taxable at the normal tax rate.
The functioning of the general pension insurance scheme
The Luxembourg pension system, like that of many other countries, is a pay-as-you-go system: current expenditure is financed by current revenue. Moreover, the Social Security Code stipulates that, beyond the coverage of annual expenditure, the revenues must guarantee the maintenance of a reserve which must be greater than 1.5 times the amount of annual pension benefits.
In order to guarantee this level of annual revenues, the overall contribution rate is fixed for each coverage period of 10 years on the basis of a technical balance sheet and actuarial projections established by the General Inspectorate of Social Security (IGSS). Every 5 years, the IGSS carries out an update of its balance sheet and projections. If the overall contribution rate initially set does not allow for the guarantee of financial equilibrium, the contribution rate is refixed by special law for a new coverage period of 10 years.
In December 2024, the reserve represents 4,39 times the amount of annual benefits.
(last updated on 22.07.2026)
The difference between pay-as-you-go and funded schemes
A pure pay-as-you-go scheme is a scheme where the pensions of beneficiaries (retirees) are paid by contributions levied on the wage bill of active workers. In this case, one speaks of intergenerational solidarity, of a social contract between active workers and retirees: the active generation takes charge of the pensions of retirees.
A funded system is a scheme where the contributions levied are not used for the payment of current retirees’ pensions, but are invested in financial markets to obtain a return. At the end of the professional career of the insured person or the cohort of insured persons, the capital thus accumulated determines the old-age benefit of the retired beneficiary.
These two schemes are not fundamentally different. The pay-as-you-go scheme is based on demographic devel-opments while the funded scheme depends on the return of financial markets. However, this return also ultimately depends on demographic evolution. The more retirees there are and the fewer active workers, the less capital will be invested in financial markets, as retirees will tend to sell their financial securities whilst there will be fewer active workers to save and therefore invest their savings. Due to the impact on financial securities prices, funded schemes therefore also depend on demographic contingencies.
The advantages of the pay-as-you-go system are undeniable. Due to their intergenerational character, these systems guarantee continuity and have a significant degree of adaptability to face economic or demographic changes. Whilst economic and financial crises are synonymous with the collapse of the acquired rights of pensioners in a funded system, their effects can be countered by simple parametric adjustments in a pay-as-you-go system – by allowing societal solidarity to operate. Another important advantage of the pay-as-you-go system lies in the possibility of introducing social elements, i.e. adjusting pensions to the overall evolution of wages and the cost of living, financing minimum pensions or valorising non-contributory periods.
(last updated on 22.07.2026)
The pure pay-as-you-go premium
The pure pay-as-you-go premium is an indicator for assessing the financial health of the general scheme. It represents the ratio between annual expenditure and the annual sum of contributory incomes. In other words, it represents the ratio between annual current expenditure, which extends beyond mere pension expenditure, and the totality of contributory incomes forming the basis of the annual contribution revenues of the National Pension Insurance Fund (CNAP – Caisse nationale d’assurance pension). A Grand-Ducal regulation fixes annually the pure pay-as-you-go premium of the previous year.
In 2024, this premium reached 23.11% and therefore remains at a level below the contribution rate – a sign that contribution revenues exceed the current expenditure of the CNAP.
(last updated on 22.07.2026)
The dependency ratio
The dependency ratio is another indicator that is frequently used in matters of pension sustainability. It designates the number of pensions per 100 contributing members. Thus, a dependency ratio of 25% means that there is one pensioner for every four active contributors. A ratio of 150% means that there are more pensioners than active contributors (namely 1.5 pensioners per active contributor).
Being based on a simple ratio between the number of pensions and that of active members, this ratio presents an obvious bias: for 100 active members, it will show a value of 50 in the presence of 50 partial pensions, and 25 where there are 25 full pensions – even though the financial burden on the system is identical in both cases.
In 2024, this ratio stands at 44.7%.
(last updated on 22.07.2026)
The remplacement rate
The notion of the replacement rate is sometimes used to analyse the generosity of the pension system. However, due to the multiplicity of its definitions, its interpretation can be profoundly biased.
Indeed, certain publications define it as the ratio between the pension and the average salary received during the entire career; others, as the ratio between the pension and the last salary received before retirement; others still, as the ratio between newly awarded pensions and the average salary of active workers at the time considered.
This diversity of definitions leads to considerable differences in the stated replacement rate: depending on the sources, the replacement rate may thus appear below 50% or, on the contrary, exceed 100%.
(last updated on 22.07.2026)
The affiliation to the general pension insurance scheme
Affiliation to the general pension insurance scheme, which covers the old-age pension, the invalidity pension and the survivor’s pension, is compulsory for all employees and self-employed persons receiving remuneration for their professional activity.
Whilst the steps for affiliation with the Joint Social Security Centre (CCSS – Centre commun de la sécurité sociale) of an employee are to be carried out by their employer, a self-employed person must ensure this themselves.
Apart from civil servants, employees or agents of the State, municipalities, public establishments, Luxembourg national railway company (CFL), the Central Bank of Luxembourg or international organisations – who are sub-ject to a statutory scheme –, beneficiaries of an old-age pension aged over 65 exercising a self-employed activity are also exempt from the general scheme.
In several situations, the insured person may be exempted from compulsory insurance, despite professional activity. The following notably benefit from an exemption:
persons who exercise their professional activity only on an occasional and non-habitual basis for a predetermined duration which must not exceed three months per calendar year;
upon request, insured persons exercising an ancillary activity in the cultural or sporting field for the benefit of a non-profit association, if the professional income derived therefrom does not exceed two-thirds of the social minimum wage;
pupils and students employed during their holidays;
persons exercising on a primary or ancillary basis a self-employed activity yielding a net professional income not exceeding one-third of the social minimum wage; and
persons exercising for a duration not exceeding one year a professional activity in Luxembourg and affiliated to a pension scheme abroad.
An insured person who exercises several professional activities falling under compulsory insurance is affiliated under each of them. Thus, by way of example, a person who occupies a salaried activity on a primary basis and simultaneously exercises a self-employed activity on an ancillary basis is also required to pay the social con-tributions relating to this self-employed activity – unless they benefit from an exemption provided for by the above-mentioned provisions.
The financing of the general pension insurance scheme
The contribution rate
The charges of the National Pension Insurance Fund (CNAP – Caisse nationale d’assurance pension) are covered mainly by contributions, supplemented by financial revenues, notably from the compensation reserve, and miscellaneous revenues. Since 1 January 2026, the overall contribution rate is fixed at 25.5% 20. Before 2026, the overall contribution rate stood at 24%.
The State bears one-third of this overall contribution rate, namely 8.5%. For the insurance of employees, the remaining contribution rate is shared in equal parts between the employee and the employer, who must each pay a contribution rate of 8.5%. In the case of a self-employed activity or in the case of voluntary insurance, the insured person must bear both the employee’s share and the employer’s share and must therefore pay a contribution rate of 17%.
Contributions are calculated on the basis of the contributory income. This is capped at five times the unskilled social minimum wage.
For periods corresponding to a salaried activity, the professional income consists of the gross salary earned, including all bonuses and all supplements, even those not expressed in monetary terms, enjoyed by the insured person, excluding the remuneration of overtime hours. A Grand-Ducal regulation may exclude from the contributory base certain non-taxable elements of remuneration.
For non-agricultural self-employed activities, the contributory income corresponds to the net professional income determined by the Direct Tax Administration (ACD) in the tax assessment. It results from the deduction from the self-employed person’s gross income of either their actual expenses or the lump-sum expenses debited to them. For the financial year not yet closed by the issuance of the tax assessment, the provisional calculation of the contributions owed by the self-employed person is made on the basis of the last known income, unless the insured person submits a request to adjust this contributory base. Upon request of the interested party, and provided that their net professional income falls between one-third of the minimum wage and the minimum wage, the contribution base may be reduced, without however being set at a level below the threshold of one-third of the social minimum wage.
The determination of the contribution base for voluntary insurance is explained on the ‘old-age pension’ page.
The deductions on pensions and social security affiliation
Taxes
Pensions paid by the Luxembourg general pension insurance scheme are, in principle, subject to personal income tax in Luxembourg – even if the insured person also receives a pension from their country of residence. A withholding tax scale on pensions is published annually by ministerial order.
This scale may be consulted on the website of the Direct Tax Administration, where it is also possible to calculate income tax oneself.
Double taxation conventions aim, in principle, to prevent a pension taxable in Luxembourg from also being subject to taxation in another State bound by such a convention.
Beneficiaries of a Luxembourg pension who fall under Luxembourg healthcare and maternity insurance are subject to the long-term care contribution as well as the contribution for healthcare insurance in kind.
Thus, provided that they fall under Luxembourg healthcare insurance, the contribution for healthcare insurance in kind borne by pensioners amounts to 2.8%, whilst the contribution for long-term care insurance amounts to 1.4% of the pension, after deduction of one fourth of the social minimum wage.
(last updated on 22.07.2026)
Affiliation to healthcare insurance
It should be noted that, under European regulations, an insured person may only be covered by the healthcare fund of one Member State. Thus, social contributions are only payable in one country, either in Luxembourg or in another country.
In order to determine whether the pensioner falls under Luxembourg healthcare insurance – and therefore whether they are liable for the healthcare insurance contribution and the long-term care contribution –, the following cases must be distinguished:
If the resident pensioner receives a Luxembourg pension, they remain affiliated with the National Health Fund (CNS − Caisse nationale de santé) and are therefore subject to Luxembourg social contributions – regardless of whether they also receive a pension from another country.
If the non-resident pensioner receives only a Luxembourg pension, then they remain affiliated with the CNS and are therefore subject to Luxembourg social contributions.
If the non-resident pensioner receives a Luxembourg pension and a pension from their country of residence, then they are affiliated with the competent healthcare fund of their country of residence. Consequently, they are not subject to Luxembourg social contributions, but they are subject to the social contributions payable in their country of residence (including, where applicable, in respect of their Luxembourg pension).
If the non-resident pensioner receives a Luxembourg pension and one or more pensions from other countries of the European Free Trade Association (EFTA, comprising the European Union, Switzerland, Liechtenstein, Iceland and Norway), without however receiving a pension from their country of residence, then they are affiliated in the country in which they were subject to healthcare insurance legislation for the longest period. If, by application of this principle, the non-resident pensioner is affiliated in Luxembourg, then they are subject to Luxembourg social contributions.
In order to benefit from the coverage of healthcare costs, the non-resident insured person falling under Luxembourg healthcare insurance must register with the healthcare fund of their country of residence. To this end, they must request the S1 form from the National Pension Insurance Fund (CNAP – Caisse nationale d’assurance pension) and transmit this document to the healthcare fund of their country of residence. In this case, they find themselves in the same situation as a cross-border worker working in Luxembourg.
Non-resident holders of an old-age or invalidity pension who last worked in Luxembourg, as well as their co-insured family members, may, in the event of illness, continue to benefit from benefits in kind in Luxembourg provided that it concerns the continuation of a treatment already begun before the occurrence of the old-age or invalidity risk – regardless of whether they fall under Luxembourg healthcare insurance or not.
Furthermore, even if they do not fall under Luxembourg healthcare insurance, an individual benefiting from an old-age or invalidity pension and having worked as a cross-border worker in Luxembourg for at least two years during the five years preceding admission to pension has, just like their co-insured family members, the right to receive medical benefits in kind in Luxembourg, provided that they reside in Germany, Belgium, France, Austria, Spain or Portugal.
The possibilities allowing a reimbursement of contributions paid to the general pension insurance scheme are strictly limited to four scenarios by the Social Security Code:
Where, after the expiry of the 65th year of age, the insured person does not fulfil the qualifying period condition for the granting of a statutory old-age pension and has not benefited, in Luxembourg or abroad, from pension benefits on the basis of the insurance periods concerned, the contributions actually paid into their account, excluding the State’s share, are reimbursed to them upon request, taking into account the adjustment to the cost-of-living index. The reimbursement extinguishes all pension entitlements.
Where, as a result of the cumulation of several activities or benefits subject to insurance, the total contribution base of an insured person exceeds the maximum contributory ceiling, the difference is not taken into account for the pension calculation. However, the insured person is entitled to a reimbursement of the corresponding share of contributions borne by them, upon request, per calendar year and at the latest at the time of the award of the pension.
Where the holder of a statutory old-age pension exercises a salaried activity, the contribution is due as in the case of subjection. However, they are entitled, upon request, to a reimbursement of contributions paid after the completion of the 65th year of age; the reimbursement consists exclusively of the share of contributions borne by the insured person and it is not adjusted to the cost-of-living index. The reimbursement may be requested for each calendar year.
Where a person moves to a pension scheme of an international organisation providing for the buyback of pension rights acquired during prior periods of employment, the contributions paid are transferred, upon request submitted by the interested party, before the occurrence of the risk, to the pension scheme of the international organisation and taking into account compound interest at the rate of 4% per year.
Every pension application is followed by a presidential decision of award or rejection taken by the National Pension Insurance Fund (CNAP – Caisse nationale d’assurance pension).
In the event of disagreement, the interested party may lodge an objection against the decision, which will be decided by the Board of Directors of the CNAP. The decision of the Board of Directors may be the subject of an appeal before the Social Security Arbitration Tribunal. The appeal is not suspensive.
If the Social Security Arbitration Tribunal considers the pension application well-founded, it determines the starting point of the pension. As soon as the decision awarding the claim in principle has become final, CNAP determines the amount of the pension. The Arbitration Tribunal will decide in the last resort up to the value of 1,250 euros and on appeal when the value of the dispute exceeds this sum.
An appeal against the judgement of the Social Security Arbitration Tribunal may be lodged with the High Council of Social Security. The appeal has suspensive effect.
All appeals must be made in writing within 40 days of the notification of the CNAP’s decision or judgment. After this period, the appeal is no longer admissible and the decision becomes final.
It should be noted that insured persons receive an annual statement of their Luxembourg insurance career, provided that they were affiliated during the previous year. They are advised to check the accuracy of this statement.