Retirement planning in Luxembourg is a serious subject for everyone, whether you’re a resident or a cross-border worker…just like many countries, Luxembourg is facing demographic changes to its aging population. In order to ensure the pensions system’s long-term viability, the government is preparing a significant overhaul of the pension scheme, set to take effect in January 2026. Among the key changes are measures to increase the tax-deductible ceiling for retirement savings. The increase in the ceiling for this tax benefit will enable all insured persons to better prepare for and optimise their standard of living in retirement.
The new challenges of Luxembourg’s pension system
To address sustainability and fairness in the system, Luxembourg’s reform introduces several major structural adjustments starting from January 2026. The agenda includes extending working careers, raising contribution rates, also significantly increasing the deductible pension insurance ceiling.
Why This Reform?
Luxembourg’s pension system is built on intergenerational solidarity. This model, which has remained stable for many years, now faces demographic challenges including an aging population, longer life expectancy, and growing pressure on public finances. To tackle these issues, the government is launching a sweeping reform in January 2026, designed to preserving the social balance, encourage longer working careers, and boost individual savings.
Contribution Duration and Retirement Age
The reform changes the conditions for accessing early retirement, gradually moving people’s actual retirement age closer to the legal retirement age of 65.
From 2026 onwards, accessing early retirement at age 60 will become more difficult. To qualify, you’ll need to extend your working life by one month in 2026, two months in 2027, four months in 2028, six months in 2029, and eight months in 2030 (source: Information about the pension reform planned for 2026 – CNAP.lu d’Pensiounskeess – Caisse nationale d’assurance Pension – Luxembourg). However, if you meet the criteria for an early pension starting at age 57, no changes apply to you.
At the same time, those choosing to work voluntarily beyond the age of 65 can benefit from increased tax relief of up to €9,000 per year (source: Résumé des travaux du 10 octobre 2025 – Le gouvernement luxembourgeois) . This mechanism aims to provide greater flexibility and encourage a gradual transition from working life to retirement.
A Higher Ceiling: More Benefits for Retirement Savings
One of the reform’s concrete advances concerns personal savings and retirement income insurance contracts. The new tax deduction ceiling rises from €3,200 to €4,500 per year per taxpayer, effective 2026 (source: Résumé des travaux du 10 octobre 2025 – Le gouvernement luxembourgeois). This substantial increase reflects the government’s commitment to encouraging individual savings as the population ages and budgets tighten.
For each household, this measure opens the door to stronger retirement income protection by lowering immediate tax burden and incentivizing the buildup of additional capital.
Example:
A single Luxembourg resident taxed at a marginal rate of 35% chooses to contribute €4,500 annually to a retirement insurance contract starting in 2026. This contribution allows them to reduce their taxable income by €4,500, saving €1,575 in taxes (€4,500 × 35%). If they maintain this pace over 10 years, they’ll save €15,750 in taxes while building a dedicated retirement fund. For a couple, the savings double: €3,150 saved per year per taxpayer, totaling €31,500 over 10 years, not counting returns on accumulated savings.
Other Specific Measures
From 2026, the overall pension contribution rate rises from 24% to 25.5%. This increase, fairly distributed among employees, employers, and the state, translates to a 0.5% rise in contributions deducted from each paycheck. This measure strengthens the system’s financial stability through 2042 in response to rising pension expenditures.
To limit the impact on vulnerable groups, such as the self-employed or low-income households, targeted support measures are in place. These measures are to create a form of aid or relief to preserve social equity despite the increased contribution demands.
Practical Details: Timeline and Deadlines
The reforms follow a tight schedule! The draft law, submitted to Parliament in autumn 2025, will come into force on 1st January 2026. However, some provisions, such as the gradual increase in contribution duration for early retirement, only take effect from July 1st 2026.
Getting Ahead of the Reform: Practical Tips and Wealth Planning
Successfully transitioning to the new rules will depend on your ability to anticipate and adjust your strategy based on your personal situation. Here are some practical tips to make the most of the new rules and secure your financial future. Complete a pension review to verify your contributions, ensure which contributions are counted also how the pension reforms are going to impact your retirement date and pension amount.
- Take advantage of the tax ceiling increase to optimise your payments into individual savings solutions, particularly retirement savings plans.
- Consider extending your working life to benefit from the special tax breaks available to those already eligible for retirement but choose to continue working or opt for a gradual retirement based on their sector.
- Keep your file up to date and prepare key documents in advance (career statements, affiliation or buyback certificates, etc.).
Good to Know: Plan Your Retirement After the Reform
Wondering how to adapt your retirement plan after the reform? Your Foyer advisor supports you with tailored guidance, tax optimization solutions, personalized projections, and updates on legislative changes. Take advantage of Foyer’s local expertise to anticipate and optimise your wealth according to the new rules.
The 2026 pension reform secures the system in the long-term through shared effort, while creating real opportunities to optimise your personal situation, especially through the increased tax ceiling for supplementary retirement income. Take advantage of these changes and take control of your retirement with Foyer.
Three Key points
- New tax deduction ceiling: €4,500 per year starting 2026.
- Contribution duration for early retirement increases gradually; legal retirement age stays at 65.
- Contribution rates rise from 24% to 25.5%, with support for vulnerable groups.
