Home > News > 1999 > July 1999 > Luxembourg Domestic Supplementary Pension Law
Luxembourg Domestic Supplementary Pension Law
Overview of the Law on supplementary pension schemes
Scope of the law
The purposes of this law are
- to offer a legal framework to occupational pension schemes,
- to secure the rights of scheme members, and
- to harmonise the taxation of premiums and benefits under the various types of authorised pension schemes.
The law will apply to all occupational pension schemes, including those which were established before its enforcement.
Enforcement date
1 January 2000.
Controlling authorities
General inspectorate of the Social Security office
Approval procedure
Submission to the controlling authorities of a financial plan along with a copy of the schemes rules within 3 months following the implementation of the scheme (the same procedure applies when the scheme rules and/or the financial plan are modified).
Reporting
Reporting requirements to be defined by the controlling authorities (possibly through a Grand Ducal regulation).
Types of schemes
Pension promise backed by book reserves, pension funds and group insurance contract (pay-as-you-go schemes are not allowed under the new law).
Benefits under the scheme
retirement benefits, death benefits, reversionary benefits, widow's and orphan's benefits, disability benefits.
Contributions
The scheme rules may provide that scheme members will pay personal contributions into the scheme, in which case these personal contributions shall be transferred to a group insurance contract or to a pension fund.
Deductibility of the employer's contributions
The contributions paid by the employer are deductible up to 20% of the employee's ordinary annual salary The deductibility of contributions is subject to the provision a certificate to be requested from the controlling authorities.
Deductibility of the employee's contributions
The employee's contributions can be deducted up to a maximum of LUF 48,000 per annum.
Taxation
The contributions paid by the employer into a pension scheme will bear a 25% tax (to be retained - and borne? - by the employer up-front) but then the corresponding benefits will not be subject to any tax in Luxembourg.
Social security contributions
Contributions to a supplementary pension are not subject to any social security contribution. However, contributions which have not been subject to the 25% up-front taxation are subject to the 1% dependency contribution.
Financing requirements
Pension promises must be financed on a regular basis, according to a financing scheme, and under the control of an authorised actuary, as from the date of affiliation to the scheme.
Insurance requirements
The disability and death risks (including reversionary benefits) must necessarily be reassured. In addition, for book reserves schemes, employers must necessarily affiliate with an authorised institution which insures insolvency risks.
Vesting period
Maximum 10 years (which includes the waiting period before an employee can join the scheme and the number of years during which he must be affiliated before being eligible to the payment of any benefit under the scheme).
Cross-border payments
Payments, in other EU Member States, of the benefits due under pension schemes shall be net of any taxes and transaction charges which may be applicable.
Maintenance of rights
Vested rights are fully maintained if the member leaves before retirement, even where he moves to another member state.
The Scheme Rules
Minimum contents
- The type of pension scheme which will be used, i.e. book reserves, pension fund or group insurance;
- A definition of the benefits granted to the scheme members and, where applicable, their surviving spouse and children;
- The persons who are eligible as scheme members and the conditions to become a scheme member, to acquire pension rights and to receive the benefits;
- The amount of personal contributions (if any) to be paid by the scheme members, with an indication of how these contributions will be levied and then used, and details of the rules applicable to the related provisions;
- The rules for the calculation, at any particular time, of the vesting rights and vested rights;
- How and how often will scheme members receive information on the nature and amount of benefits under the scheme, as well as on their vesting rights and vested rights;
- How benefits are paid;
- The conditions and provisions relating to the maintenance, transfer and purchase of the vested rights, including where the scheme member moves to another EU Member State;
- How and to whom benefits are payable in the event of the death of the scheme member;
- The rules and conditions under which the scheme can be modified or abrogated.
- The mode of computation of affiliation periods;
- For schemes that are established by a group of undertakings, the rules according to which the provisions and assets in excess are to be shared in the case where an undertaking leaves the group;
- How confidentiality will be safeguarded with respect to any medical opinion or declaration.
Contents of the Financing scheme
- undertaking's name;
- name of the scheme's actuary;
- brief description of the pension scheme foreseen by the scheme rules
- annual valuation date of the liabilities
- where applicable, the existence of a contribution paid by the scheme members, its utilisation (i.e. transfer to a pension fund or to a group scheme) and the actuarial method applied to convert it into a benefit;
- for defined contribution schemes, the method used to capitalise those contributions
- for defined benefit schemes:
- the deficit amount (if any), at the date of implementation or modification of the scheme, of any liabilities arising from previous periods
- the actuarial method used, as well a description of the consequences of the method on the financing of the scheme and, where applicable, on the amortisation of the deficit of liabilities arising from previous periods
- the underlying actuarial and economic hypotheses
- for internal pension schemes:
- a confirmation that the scheme is affiliated with an authorised insolvency insurance institution and
- where applicable, the name and head office of the insurance undertaking with which the disability and death benefits are reassured;
- for pension funds:
- the statutes of the pension fund
- the name of its board members
- where applicable, the name and head office of the insurance undertaking with which the disability and death benefits are reassured
- for group insurance contracts:
- the name and head office address of the insurance company.
The financing scheme must be deposited with the supervisory authority.
Barnett Waddingham, July 1999.